281 1 MANITOBA CLEAN ENVIRONMENT COMMISSION 2 3 VERBATIM TRANSCRIPT 4 Volume 2 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 Monday, March 2, 2004 22 Radisson Hotel 23 288 Portage Avenue 24 Winnipeg, Manitoba 25 282 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 22 23 24 25 283 1 LIST OF PARTICIPANTS 2 3 Manitoba Conservation: 4 Larry Strachan 5 6 7 8 Manitoba Hydro: 9 Ed Wojczynski 10 Ken Adams 11 Elvis Thomas 12 Carolyn Wray 13 Ron Mazur 14 Lloyd Kuczek 15 Cam Osler 16 Stuart Davies 17 David Hicks 18 George Rempel 19 Campbell MacInnes 20 David Cormie 21 22 23 24 25 284 1 INDEX OF EXHIBITS 2 3 Number Page 4 5 No Exhibits marked today 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 285 1 INDEX OF UNDERTAKINGS 2 3 UNDERTAKING NO. PAGE 4 5 MH-1: Advise what the balance in the 6 deferred assets account was as it related to the 7 PowerSmart program for demand-side 8 management 296 9 MH-2: Provide how much of the planning 10 studies account relates to Wuskwatim, 11 Conawapa and Gull 300 12 MH-3: Provide reference to the Lake 13 Winnipeg levels 304 14 MH-4: Advise of the interrogatory that 15 lists licences or permits that are required in 16 addition to what's before the CEC 312 17 MH-5: Provide updated financials with 18 respect to the present situation of 19 Manitoba Hydro 314 20 MH-6: Check to verify if 5.58 21 million was raised to 7.8 million for 22 the purposes of the Transmission 23 Development Fund in 2002 dollars 469 24 25 286 1 2 INDEX OF UNDERTAKINGS 3 4 UNDERTAKING NO. PAGE 5 6 MH-7: Check to see how much money is 7 attributable to Wuskwatim Training 8 Program 472 9 MH-8: Provide history of 10 Provincial guarantee fees 491 11 MH-9: Provide history of water 12 rental rate 493 13 14 15 16 17 18 19 20 21 22 23 24 25 287 1 TUESDAY, MARCH 2, 2004 2 Upon commencing at 9:07 a.m. 3 4 THE CHAIRMAN: Good morning. I see that 5 almost everyone is sitting down. I see that at the 6 presenter's table, they've got their library 7 organized or more or less. I guess it's time to 8 begin. 9 I just wanted to say a few words as we begin 10 in the process in terms of the review. As you know 11 from the mandate, the CEC has two tasks in this 12 particular review, one is to assess the need for and 13 the alternatives to and the environmental assessment 14 of the proposal, that is the generation and the 15 transmission projects. For this purpose, the 16 Minister has extended the CEC panel to include two 17 members of the P.U.B. Three members of the CEC and 18 two members of the Public Utilities Board are agreed 19 to follow the CEC usual procedures as much as 20 possible to encourage the public to participate. By 21 that, I mean a less formal process. 22 That being said, we have decided to begin with 23 the NFAAT. And today, the CEC legal counsel will 24 proceed with a more formal cross-examination. Others 25 may come forth and adopt a very loose and less formal 288 1 approach. And we encourage members of the public to 2 indeed express their questions and ask for questions. 3 You are assured that this is a CEC hearing and 4 we do not wish to proceed to formalize it overly. We 5 welcome intervenors and participants to therefore 6 bring their questions forward. 7 I just wanted to make the point again that the 8 public is welcome to participate in the process. 9 With that being said, the meeting begins. As 10 far as I know, yesterday we had the full presentation 11 by the proponents and in accordance with the hearing 12 schedule that I have, we begin this morning with the 13 Clean Environment Commission starting the process of 14 questions in regards to the NFAAT. And I throw the 15 ball to Mr. Doug Abra. 16 MR. ABRA: Thank you, Mr. Chairman. Members 17 of the Hydro Panel, there's a number of different 18 areas that I intend upon asking questions on. Before 19 I move from area to area, I will attempt to identify 20 for you what I'm going to. But each and every 21 question that I ask I'm not asking it of anybody in 22 particular. Whoever of you feels the most 23 comfortable or has the information to answer the 24 question, by all means do so. I invite any of you 25 that have the information or the one that's the most 289 1 appropriate to get the information that I am asking 2 for, please do so. It's not intended to be a 3 cross-examination of anybody in particular. But all 4 of you, I understand, are representing Hydro and 5 different ones of you are in the position to answer 6 questions in different areas. 7 I have also left with you and also with you, 8 members of the Commission, a book of documents that I 9 will probably be referring to during the course of my 10 cross-examination primarily in the area of capital 11 costs of the project. There are some extra copies 12 available that have been distributed. It's my 13 understanding, however, that you are able, through 14 your system, to project on the screen most of the 15 diagrams and charts and so forth and graphs that I 16 may be referring to in which case, I will do my best 17 to identify them for you and you will have them in 18 front of you or at least on the screen behind you as 19 well. I don't know if you still have the same 20 monitors that you had yesterday to refer to. 21 But if there's any information that you are 22 not able to provide in response to a question, feel 23 free to give an undertaking to provide that 24 information at a later date. The sooner the 25 information is provided, of course the sooner we can 290 1 follow up on it. So it will be preferable of course 2 if you're able to answer the questions with the 3 information you have here today. If there's any that 4 you're unable to answer, then as I say, feel free to 5 give an undertaking but we would ask that you respond 6 as quickly as possible in response to any 7 undertakings that you're giving. 8 MR. BEDFORD: Mr. Abra, if I may before you go 9 further, we wanted to clarify that it is a joint 10 panel. You mentioned Manitoba Hydro. It also has 11 representatives from NCN. 12 MR. ABRA: I'm sorry, Mr. Thomas, I saw you on 13 the panel. I didn't refer to NCN. I'm sorry. 14 MR. BEDFORD: And Mr. MacInnes as well. 15 MR. ABRA: And Mr. MacInnes as well. Thank 16 you very much. 17 There's a couple of questions I would like to 18 ask just by way of background before we get into the 19 specific areas. Firstly, as part of the filing, you 20 did, or not as part of the filing, but in response to 21 one of the information requests, you provided a copy 22 of the annual report from Manitoba Hydro for the year 23 2003. It did have a number of statistics in it and 24 information in it. And in particular, it's my 25 understanding that as of March 31st of 2003, the 291 1 total system capacity of Manitoba Hydro was 5,466 2 megawatts. Now, if that situation has changed, I'd 3 ask that you -- it indicates so, but as I say, that 4 was the statistic that was contained in your March 5 31st, 2003 annual report. 6 MR. CORMIE: Are you referring to the 7 difference between the 5,480 that we reported 8 yesterday on the screen versus the number that was in 9 the annual report? 10 MR. ABRA: Well, is it now 5,480, Mr. Cormie? 11 MR. CORMIE: From a planning perspective, we 12 used the 5,480. We hold it relatively constant but 13 on an annual basis, the capacity of the power system 14 changes as we continue to measure the output of our 15 machines. And according to the standards of our 16 Regional Reliability Council, each year we have to 17 report the current capability of the system. And so 18 the number changes annually. And for rounding 19 purposes, we think that the 5,480 or the 5,500 20 megawatts is an appropriate measure of our 21 capability. It changes continuously reflecting 22 changes to the capability. 23 MR. ABRA: And what you report then in your 24 annual report is basically the amount of capacity 25 you've used the previous year? 292 1 MR. CORMIE: Yes, it's the capacity that's on 2 the system during the month when our capacity is 3 greatest which is September. 4 MR. ABRA: Okay. Now, just going back for a 5 second, the issue of capacity and energy, you used 6 the two of them yesterday when you were describing 7 the system. And megawatts, I understand, are the 8 capacity, are they? 9 MR. CORMIE: Yes, they are. It's comparable 10 to the number of horsepower you have in the engine of 11 your car. 12 MR. ABRA: Okay. And as you say, an 13 automobile has a horsepower, an outboard motor has a 14 horsepower, your capacity is based upon the megawatt? 15 MR. CORMIE: Yes, it is. 16 MR. ABRA: Okay. Now what is a megawatt hour, 17 sir? 18 MR. CORMIE: A megawatt is when we produce one 19 megawatt of electricity for a period of one hour. So 20 it's a megawatt for a duration of an hour is a 21 megawatt hour. 22 MR. ABRA: So it's a level of energy? 23 MR. CORMIE: Yes, it is. 24 MR. ABRA: As opposed to capacity? 25 MR. CORMIE: Yes. 293 1 MR. ABRA: Now, according to the March 31st, 2 2003 annual report, again, the statistic that you 3 gave for what you referred to as the Manitoba firm 4 peak demand was 3,916 megawatts. Again, is that 5 accurate? 6 MR. CORMIE: Yes, that's the average demand 7 that was on the system for the peak hour of the year. 8 MR. ABRA: Okay. 9 MR. CORMIE: So in that hour, there were 10 3,000 -- 11 MR. ABRA: It's my understanding as well that 12 the total system energy supply for 2003 was 29,167 13 gigawatt hours; am I correct? 14 MR. CORMIE: Yes. 15 MR. ABRA: What's a gigawatt, sir? 16 MR. CORMIE: A gigawatt is 1,000 megawatt 17 hours. 18 MR. ABRA: Okay. Now, what percentage then is 19 Wuskwatim going to represent at 200 megawatts? 20 MR. CORMIE: 200 megawatts as a percentage of 21 5,400 megawatts or 55 is approximately 4 per cent. 22 MR. ABRA: So it's under 5 per cent? 23 MR. CORMIE: Yes, it is. 24 MR. ABRA: All right. Now, in the annual 25 report, you've also identified what's called 294 1 Construction in Progress. And the figure that was 2 given for 2003 was $356 million. What is 3 Construction in Progress? 4 MS. WRAY: Construction in Progress is capital 5 expenditures that are being made on a facility which 6 has not yet come into service, therefore it's 7 capitalized on the financial statements and 8 depreciation and interest is not yet charged to the 9 income statement. 10 MR. ABRA: Okay. And in what manner is this 11 account used then, Ms. Wray? Just in that manner? 12 MS. WRAY: Yes, it's in the assets of the 13 corporation but it is not in the property plant and 14 equipment yet. It moves into that once it has gone 15 into service. 16 MR. ABRA: Would any of the plants that we've 17 heard reference to in this hearing such as Wuskwatim 18 Conawapa or Gull be referred to in that Construction 19 in Progress line? 20 MS. WRAY: There's nothing in Construction in 21 Progress on those three prospective possible plants. 22 MR. ABRA: So Wuskwatim, notwithstanding that 23 there have been some costs, which we will get to 24 later, is still not referred to as Construction in 25 Progress? 295 1 MS. WRAY: I would have to check where exactly 2 the planning, what we would call planning studies are 3 recorded but I believe it's in a deferred account 4 rather than in a Construction in Process. 5 MR. ABRA: Now, in the statement, you've also 6 referred to the deferred assets. And what exactly is 7 a deferred assets in the balance of $35 million? 8 What does that represent? 9 MS. WRAY: Could you just direct me to the 10 line that you're looking at? There is a note to the 11 financial statements on deferred assets. 12 MR. ABRA: That's the one. 13 MS. WRAY: Under note 11? 14 MR. ABRA: That's the one, yes. 15 MS. WRAY: For $344 million. 16 MR. ABRA: And the planning studies of 35 17 million, what does that represent? 18 MS. WRAY: Subject to check, it would include 19 amounts being spent to look at prospective new 20 generation and other assets of that nature including 21 licensing costs I believe as well. 22 MR. ABRA: Do you happen to know what the 23 balance in the deferred assets account was as it 24 related to the PowerSmart program for demand-side 25 management? 296 1 MS. WRAY: We would have to get that for you. 2 MR. ABRA: If you could, please. 3 4 (UNDERTAKING MH-1: Advise what the balance in the 5 deferred assets account was as it related to the 6 PowerSmart program for demand-side management) 7 8 MR. ABRA: Now, we talked at some length 9 yesterday about the Churchill Diversion Program, a 10 Churchill River Diversion Program CRD as it's often 11 usually referred to as. I don't intend upon asking 12 you any questions because you explained it well 13 yesterday. I think most of us understand it. I do 14 want to ask you some questions about the augmented 15 flow program. Firstly what is it? 16 MR. CORMIE: The augmented flow program is 17 when Manitoba Hydro approaches the Province and 18 requests a change for a period of a year to the terms 19 and conditions that are in the interim licence. 20 Those changes involve expanding the range of 21 regulation of South Indian Lake, involve changing the 22 lower level to which the Notigi Forebay can be 23 operated and changes the flow limits and level limits 24 on the Burntwood River downstream to allow Manitoba 25 Hydro to divert additional water beyond what is 297 1 allowed for in the interim licence. 2 MR. ABRA: Okay. And its purpose then is 3 what, sir? 4 MR. CORMIE: To increase the flow down the 5 diversion to the lower Nelson plants. 6 MR. ABRA: And the plants that are in 7 existence as far as the Churchill River Diversion 8 Program is concerned? 9 MR. CORMIE: Yes. 10 MR. ABRA: Okay. When was it implemented, 11 sir? 12 MR. CORMIE: From the very beginning of the 13 operation of the Churchill River Diversion, it was 14 recognized that the terms and the interim licence 15 were restrictive. And immediately, we undertook a 16 test program to see whether additional flows could be 17 diverted from the Churchill River into the Nelson 18 River. 19 For the last 18 years, we have been requesting 20 exactly the same changes to the interim licence terms 21 and conditions and that is what we referred to as the 22 augmented flow program. 23 MR. ABRA: Okay. The flow conditions of the 24 Nelson River, what does that mean as it relates to 25 the augmented flow program? 298 1 MR. CORMIE: The average flow of the Nelson 2 River at the Lower Nelson Generating Station is 3 approximately 112,000 cubic feet per second. 4 MR. ABRA: That's the average? 5 MR. CORMIE: That's the long-term average. 6 MR. ABRA: Okay. Do you know what the maximum 7 is by any chance? 8 MR. CORMIE: I think we've recorded it as high 9 as 225,000 cubic feet per second. And the lowest is 10 approximately 60,000 cubic feet per second. 11 MR. ABRA: Is there any kind of a seasonal 12 pattern, sir? 13 MR. CORMIE: I think since we began regulation 14 of the Churchill River Diversion and the Lake 15 Winnipeg Regulation, the flow pattern on the Nelson 16 River is relatively constant throughout the year. 17 MR. ABRA: All right. What about break up and 18 freeze up? Does it vary much during break up and 19 freeze up? 20 MR. CORMIE: Freeze up takes place normally 21 over a three or four week period in the fall. It can 22 begin as early as the last week of October and it can 23 occur as late as the third week in November. Break 24 up occurs in April and early May when the ice that's 25 formed along the river gradually dissipates and 299 1 disappears. It's not an active sudden collapse of 2 the ice structure, it's just a slowly deterioration 3 of the ice along the river. 4 MR. ABRA: Do either break up or freeze up 5 have any kind of a significant impact upon the 6 augmented flow program? 7 MR. CORMIE: The freeze up is the -- the 8 freeze up of the waters on the Nelson River 9 especially at the outlet of Lake Winnipeg restrict 10 the outflow capability of Lake Winnipeg. And the 11 timing of freeze up determines when flows are 12 restricted from Lake Winnipeg. That determines the 13 timing of when we would like to have high flows 14 coming down -- the highest flows coming down the 15 diversion route so that flow reductions that occur 16 along the Nelson River because of ice formation can 17 be offset by flow increases that come from the 18 Churchill River Diversion. So we try and coordinate 19 the flows around the timing of freeze up. 20 MR. ABRA: Okay. Is the augmented flow 21 program, or AFP as you referred to it as, going to 22 have any impact on Wuskwatim, sir? 23 MR. CORMIE: The augmented flow program allows 24 Manitoba Hydro to divert additional flows. As a 25 result there will be additional power production at 300 1 Wuskwatim from those additional flows. 2 MR. ABRA: Okay. And what about Wuskwatim on 3 the augmented flow program? 4 MR. CORMIE: There is -- other than just 5 having more water going through the turbines, there 6 is no relationship between Wuskwatim and the 7 augmented flow program. 8 MR. ABRA: Sorry, if I can just backtrack for 9 a moment, Ms. Wray. There's one area I didn't ask 10 you about. In that planning studies account of the 11 deferred assets that I spoke to you about earlier, 12 can you get for us, if you don't have the figures 13 available now, how much of that account relates to 14 Wuskwatim, Conawapa and Gull? 15 MS. WRAY: Yes, we'll get you that breakdown. 16 MR. ABRA: Thank you. 17 18 (UNDERTAKING MH-2: Provide how much of the planning 19 studies account relates to Wuskwatim, Conawapa and 20 Gull) 21 22 MR. ABRA: I'd like to go briefly to Lake 23 Winnipeg Regulation. Again, you gave some 24 significant explanation of it yesterday, Mr. Cormie, 25 but there's some questions that we do have arising on 301 1 that issue. 2 Firstly, is the Lake Winnipeg Regulation going 3 to have any impact on Wuskwatim? 4 MR. CORMIE: Would the project have an impact 5 on Wuskwatim? The project does not affect Wuskwatim. 6 Wuskwatim has a slight effect on the operation of 7 Lake Winnipeg Regulation. 8 MR. ABRA: Can you tell us what that is? I 9 believe you covered it yesterday but since you 10 mentioned it again. 11 MR. CORMIE: Okay. Manitoba Hydro intends to 12 enter into export sales contracts that, from the 13 dependable output from Wuskwatim, which is 14 approximately 1,250 gigawatt hours per year. But on 15 average, Wuskwatim, will produce more power, more 16 energy than the 1,250. So there will be some surplus 17 energy generated from Wuskwatim. 18 It's our expectation that we will use Lake 19 Winnipeg Regulation to adjust the timing when that 20 additional energy above the dependable capability 21 will go to market. And that is what creates the 22 possibility for changed outflows from Lake Winnipeg 23 as we take the additional approximately 250 gigawatt 24 hours to market. 25 Lake Winnipeg is capable of moving that energy 302 1 seasonally throughout the year. Summer periods tend 2 to have higher prices in the markets so if we can get 3 it to market in that time, Lake Winnipeg will try and 4 move the energy to the summer season. If that's not 5 possible because we have generator limits or 6 transmission limits, then we will have to take it to 7 market at other times. But there's the flexibility 8 of moving that additional energy that Wuskwatim 9 produces above which sold as a firm export sale and 10 time it to the market needs. 11 MR. ABRA: Okay. Now, do you keep any models 12 or do you have any summary reports which demonstrate 13 the effects of the Lake Winnipeg Regulation Program 14 and the water levels under different scenarios, sir? 15 In particular, what the effect of Wuskwatim may be on 16 Lake Winnipeg Regulation? 17 MR. WOJCZYNSKI: Your question is, if I 18 understood you right, did we look at Lake Winnipeg 19 levels with the addition of Wuskwatim, what the 20 impact of Wuskwatim is on Lake Winnipeg levels? 21 MR. ABRA: Well, what we're interested in 22 more, Mr. Wojczynski, is whether or not you keep any 23 models of summary reports on Lake Winnipeg Regulation 24 itself. And going from that then, does Wuskwatim 25 have any impact upon it? 303 1 MR. WOJCZYNSKI: What we have is our splash 2 model which we utilize to do all our system 3 evaluations when looking forward in the planning 4 mode. And that splash model, inherently in it, 5 models, amongst the many other things, the levels of 6 Lake Winnipeg. 7 So while we don't keep distinct and separate 8 reports on Lake Winnipeg levels, it's inherent in the 9 database and the model itself. 10 MR. ABRA: Do you have those available, sir, 11 for Lake Winnipeg and also for Cross Lake? 12 MR. WOJCZYNSKI: There's two parts to that. 13 The Cross Lake, we did provide in the original 14 material in the filings, we have provided Cross Lake 15 levels. We have information on Lake Winnipeg levels 16 that could be provided. 17 MR. ABRA: Okay. If you can refer Mr. 18 Farlinger, if need be, to where it is in the filing 19 then with respect to Cross Lake? 20 MR. WOJCZYNSKI: We can try and do that right 21 now if you want or we can just give a summary of 22 where the places are later. 23 MR. ABRA: What Mr. Farlinger is interested in 24 particular, sir, is any supporting documentation that 25 was used in the preparation of the summary, not just 304 1 the numbers themselves. 2 MR. WOJCZYNSKI: We will provide you the 3 specific reference where the levels are for Cross 4 Lake. I believe it's DFO-S-39. Yes, here it is. 5 DFO. Manitoba Hydro NCN EIS DFO-S-39. That was a 6 supplementary filing last year. And you'll see at 7 the rear of that figure, 4(b) and 4(a) have Cross 8 Lake levels with and without Wuskwatim. One for the 9 main case and the other for a sensitivity case. 10 We could provide as well the Lake Winnipeg 11 levels for that if that was desired. So we'll make 12 that an undertaking. 13 14 (UNDERTAKING MH-3: Provide reference to the Lake 15 Winnipeg levels) 16 17 MR. WOJCZYNSKI: And secondly, you're asking 18 if we have backup documentation and reports. What we 19 have is the original runs and all their databases and 20 then we extract information as required. And the 21 kind of information that's in the DFO-S-39 and also 22 in various interrogatory responses like 23 CNF/MH/NCN/1/EIS future project 261-A, those 24 interrogatories contain the extraction of the 25 information from those runs. If there's specific 305 1 information that additionally would be desirable to 2 be extracted, we could always go and do that. 3 MR. CORMIE: With regard to the effects on 4 Lake Winnipeg levels itself, because Lake Winnipeg is 5 much much larger than Cross Lake and our studies 6 focused on Cross Lake and we showed that there were 7 very small changes to Cross Lake, the changes to Lake 8 Winnipeg levels would be even less perceptible. They 9 would be almost -- you couldn't see the differences 10 in the lines if we were to plot them on the charts. 11 So we can do the mathematical analysis and show 12 you that but the scale of Lake Winnipeg relative to 13 Cross Lake, you won't see any difference in the 14 analysis. 15 MR. ABRA: Okay. That's fine, sir. Thank 16 you. I'd like to go briefly to the 1990 hearings 17 that took place with respect to primarily Conawapa. 18 I don't know whether any of you were involved in them 19 or not. But they dealt, as you know, with Conawapa 20 and the possibility of proceeding with that project. 21 Now that time, of course, Conawapa was 22 considered to be in priority to Wuskwatim as far as 23 your scheduling was concerned. That's now changed 24 and you testified yesterday to the reasons for it. 25 But the question that arises from that of course is 306 1 firstly, there was evidence given in 1990, I 2 understand, related to the interconnections as they 3 existed with Ontario at that time. Had there been 4 any new interconnections built as far as Ontario is 5 concerned since 1990? 6 MR. WOJCZYNSKI: No, there haven't. 7 MR. ABRA: None at all? 8 MR. WOJCZYNSKI: No. There has been some work 9 on the interconnections themselves in terms of the 10 facilities on them but there are no new transmission 11 lines per se built but there was some work done to 12 maintain the ratings and upgrade the ratings. But 13 the same fundamental transmission lines exist. It's 14 just the station equipment there's been some upgrades 15 to bolster the ratings and the transfers. But the 16 lines themselves, there have been no new lines. 17 MR. ABRA: Just for the benefit of the 18 Commissioners and others, Mr. Wojczynski, and correct 19 me if I'm wrong, basically the interconnections are 20 the transmission lines themselves that run from 21 Manitoba to Ontario and from Ontario to Manitoba and 22 then there are stations that basically connect them; 23 am I correct? 24 MR. WOJCZYNSKI: Yes, that is correct. 25 MR. ABRA: And the interconnection is 307 1 basically the station that connects the transmission 2 lines from the respective provinces? 3 MR. WOJCZYNSKI: Well, as you'd be indicating, 4 the interconnection is composed of both. 5 MR. ABRA: Okay. 6 MR. WOJCZYNSKI: Because the critical result 7 is how much capacity can we transfer over that line 8 and it's dependent on both the line itself and the 9 station equipment. 10 MR. ABRA: Now, assuming for a moment that, 11 and we'll get into this a little bit later again, but 12 assuming for a moment that a new contract was reached 13 with Ontario and an application was made to proceed 14 with Conawapa, would Wuskwatim still be necessary? 15 MR. WOJCZYNSKI: Wuskwatim would still be 16 economic to proceed in that case. And so given that 17 in the context of this review, that need includes 18 being profitable and beneficial, then in that case, 19 yes, Wuskwatim would still be needed. 20 MR. ABRA: Okay. You've also, in the last 21 area just that I wish to deal with very briefly, 22 during the interrogatories, at least with respect to 23 the introduction, I'm sorry, or the background, but 24 during the interrogatories, you provided evidence on 25 the various permits and approvals that had to be met 308 1 in order to proceed with the Wuskwatim project. In 2 particular, I draw your attention to CEC/MH/NFAAT-2. 3 And it's pages 14(a). And listed in that is the 4 Environment Act licence Class 3, which of course was 5 referred to by Mr. Strachan yesterday. Now, the 6 Water Power Act Authorization, what is that? 7 MR. WOJCZYNSKI: I'm sorry, Mr. Abra, could 8 you repeat the reference, please? 9 MR. ABRA: I'm sorry, yes. It's 10 CEC/MH/NCN-1/NFAAT 14(a). 11 MR. WOJCZYNSKI: Oh, it's 1. So we have the 12 reference now. I'm sorry, can you repeat the 13 question now? 14 MR. ABRA: The first one of course is the 15 environment licence itself related to both the 16 generation plant and the transmission. The 17 generation is Class 3, the transmission line is Class 18 2. You have to receive licences for each of them? 19 MR. WOJCZYNSKI: Yes. 20 MR. ABRA: Okay. Now, the Water Power Act 21 Authorization, what is it, sir? 22 MR. WOJCZYNSKI: We require multiple licences 23 and authorizations. So in addition to the 24 Environment Act, there's the Water Power Act which is 25 applicable. And in that, we have to have a separate 309 1 application under the Water Power Act and as for any 2 other hydraulic development in the Province. And so 3 that has been placed with the Water Stewardship 4 Branch and that process is unfolding. 5 MR. ABRA: Okay. It's a provincial statute 6 and it's a provincial authorization that's given? 7 MR. WOJCZYNSKI: Yes, sir. 8 MR. ABRA: The Fisheries Act Authorization is 9 a federal authorization? 10 MR. WOJCZYNSKI: Yes, sir. 11 MR. ABRA: And what's the status of it at the 12 present time? 13 MR. WOJCZYNSKI: Application has been made and 14 we are intensely working towards getting that with 15 DFO, meeting their various requirements which are 16 harmonized -- the process for doing that is 17 harmonized with the provincial licensing. But as Mr. 18 Strachan had indicated yesterday in his opening 19 remarks, there are additional requirements under the 20 federal process compared to the provincial one. And 21 so those are fully being met as well. 22 MR. ABRA: When you say DFO, you mean what, 23 sir? 24 MR. WOJCZYNSKI: Department of Fisheries and 25 Oceans of the Federal Government. 310 1 MR. ABRA: Now, you have also referred to the 2 Navigable Waters Protection Act. That's again a 3 Federal Statute? 4 MR. WOJCZYNSKI: Yes, sir. 5 MR. ABRA: And application and licence have to 6 be obtained in that regard? 7 MR. WOJCZYNSKI: Yes. 8 MR. ABRA: It relates specifically to what, 9 sir? 10 MR. WOJCZYNSKI: It relates to the fact that 11 the Nelson River will be considered a navigable water 12 although not many people navigate it. Sorry. 13 MR. ABRA: The Burntwood River? 14 MR. WOJCZYNSKI: The Burntwood River, my 15 apologies. And then not many people would navigate 16 over Taskinigup Falls. But the river itself is 17 considered a navigable river and thus we have to get 18 an authorization under it. 19 MR. ABRA: You refer to Crown Lands permit. 20 What's that, sir? 21 MR. WOJCZYNSKI: That's for using land and 22 Crown land which we would be doing with the station 23 and the infrastructure. 24 MR. ABRA: The Water Rights Licence, what's 25 that, sir? 311 1 MR. WOJCZYNSKI: That's for the start-up camp 2 and the other camps that we'd be using water for 3 various purposes. And so there's a normal provincial 4 requirement for that. 5 MR. ABRA: Okay. So that would be for the 6 purpose of construction of the camp and the uses and 7 so on? 8 MR. WOJCZYNSKI: Yes, and for consumptive use, 9 yes. 10 MR. ABRA: So I assume application had not 11 been made yet depending upon the application here and 12 so on or has it been? 13 MR. WOJCZYNSKI: No, they have not been made 14 yet. 15 MR. ABRA: You also require for the camp a 16 sewage treatment plant licence, the water disposal 17 grounds licence and you have to register the domestic 18 water system and you require work permits, do you? 19 MR. WOJCZYNSKI: Yes, we do. 20 MR. ABRA: Are there any other licences or 21 permits that are required in addition of course to 22 what's before the Clean Environment Commission? 23 MR. WOJCZYNSKI: You mean additional to what's 24 listed in 14(a)? 25 MR. ABRA: Yes. 312 1 MR. WOJCZYNSKI: There are some other ones, 2 that we would need, for instance, blasting permits 3 and there are various other ones. There is an 4 interrogatory which lists those. They are not major 5 in the sense of us feeling there will be any 6 difficulties with them but we have to, in due 7 process, get them. I could find where that 8 interrogatory is if you want it. It is in the filing 9 right now. 10 MR. ABRA: Yes, okay. 11 12 (UNDERTAKING MH-4: Advise of the interrogatory that 13 lists licences or permits that are required in 14 addition to what's before the CEC) 15 16 MR. ABRA: And do you have any idea how long 17 it takes to obtain those various licences? In other 18 words, are they going to affect the timing of the 19 project at all? 20 MR. WOJCZYNSKI: We are confident that they 21 will not affect the timing. We have a lot of 22 experience with doing these. There are regular 23 processes in place. The only other aspect that may 24 be significant and worth pointing out is that the 25 project itself won't require an export licence. But 313 1 later on, if our exports that are additional in our 2 system due to Wuskwatim, if they are across the 3 border to the United States and they are of a 4 long-term nature for example, long-term contract, we 5 would have to get some permitting. But that isn't 6 required to construct Wuskwatim or to have it come in 7 on time for its inservice date. 8 MR. ABRA: But as you've said, it would be 9 required for the purposes of transmission to the 10 United States? 11 MR. WOJCZYNSKI: Yes. 12 MR. ABRA: And you do intend on exporting to 13 the United States as far as Wuskwatim is concerned? 14 MR. WOJCZYNSKI: In all likelihood. But we 15 could be exporting to Ontario or Saskatchewan. But 16 we have a number of licences that we work with on an 17 ongoing basis that give us authority to export 18 without getting additional licences. So if we would 19 enter into a major long-term sale, we would need a 20 permit for that. But if we would export under the 21 existing authorizations, we wouldn't. 22 MR. ABRA: Ms. Wray, just in conclusion with 23 respect to the background, we did refer you initially 24 to the annual report of 2003. I assume that you have 25 updated financials with respect to the present 314 1 situation of Manitoba Hydro? 2 MS. WRAY: Yes. I didn't bring them with me 3 as a matter of fact but there was a quarterly report. 4 MR. ABRA: They can be provided? 5 MS. WRAY: Yes. 6 7 (UNDERTAKING MH-5: Provide updated financials with 8 respect to the present situation of Manitoba Hydro) 9 10 MR. ABRA: I may as well ask you this now 11 because it's undoubtedly going to get asked at some 12 point. There's been a significant amount of 13 publicity about the losses that you have suffered 14 over the past year. I believe the figure was in 15 excess of 300 million, correct me if I am wrong. 16 What, if any, impact is that going to have on 17 Wuskwatim? 18 MS. WRAY: It won't have any impact on 19 Wuskwatim. We're currently looking in our latest 20 integrated financial forecast at a loss of $370 21 million, actually a little bit in excess of $370 22 million, but that would not have an impact on 23 Wuskwatim. 24 MR. ABRA: What's the reason for that, ma'am? 25 MS. WRAY: We're dealing with a drought 315 1 situation. As you've seen in the numerous 2 sensitivities presented yesterday, we've looked at 3 the possibility of that occurring at Wuskwatim 4 inservice as well and it's just one of those major 5 risks that we live with. And we have tested that 6 sensitivity and determined that Wuskwatim would still 7 be worthwhile to proceed with. 8 MR. ABRA: Okay. It's not going to affect 9 Hydro's financing at all as far as the contemplated 10 borrowings are concerned? 11 MS. WRAY: Well obviously, if you have a loss, 12 then that will increase our borrowings. But the 13 differential that Wuskwatim will make is still very 14 small to our debt ratio. 15 MR. ABRA: And the money is still available to 16 borrow? 17 MS. WRAY: Yes. 18 MR. ABRA: Members of the Committee, I intend 19 upon moving now to the Summary of Understanding 20 between Nisichawayasihk and Manitoba Hydro. That's 21 really the last of the questions that I have related 22 to sort of a background introduction, if I can use 23 that expression. Do you have any questions or should 24 I move on? 25 MR. MAYER: I have some questions. Yesterday, 316 1 Mr. Rempel said the construction and operation of 2 Wuskwatim would not change the Churchill River 3 Diversion flow patterns. I made a note of that 4 because he didn't mention augmented flow and I want 5 to talk about augmented flow. 6 Firstly, as I understand it, your interim 7 licence, under the whatever Act was in existence at 8 the time, limited you I thought to about 30,000 CFS 9 extra down the Burntwood River; am I correct in that? 10 MR. CORMIE: That's correct. 11 MR. MAYER: And I am also informed now that 12 your releases now are 34,000 CFS in winter and 35,000 13 CFS in summer; is that correct? 14 MR. CORMIE: That's correct. 15 MR. MAYER: So therefore, I am assuming that 16 the augmented flow program gives you an extra 4,000 17 to 5,000 CFS going down the Burntwood River and 18 potentially through your Wuskwatim generators, 19 turbines? 20 MR. CORMIE: That's correct. 21 MR. MAYER: And am I correct in assuming that 22 this augmented flow program is authorized by the 23 relevant Minister pursuant to the Water Power Act? 24 MR. CORMIE: That's correct. 25 MR. MAYER: So am I also correct in assuming 317 1 that you require that extra 4,000 to 5,000 CFS to hit 2 the targets for generation on both the Burntwood and 3 the Lower Nelson River? 4 MR. CORMIE: I'm not understanding what you 5 mean by the target generation? 6 MR. MAYER: All right. When you're talking 7 about your capacity, I am assuming that you are 8 including in that capacity what that extra 4,000 to 9 5,000 CFS generates? 10 MR. CORMIE: Right. Over the long term, Mr. 11 Mayer, the augmented flow program allows us to divert 12 approximately 3,500 cubic feet per second. Even 13 though the licence limits are changed annually, there 14 may not necessarily be enough water to utilize that 15 capability. 16 On average, the augmented flow program gives 17 us up to 3,500. Although in the summer, we are 18 allowed to divert an extra 5,000 and in the winter, 19 an extra 4,000. 20 MR. MAYER: What I'm getting at, sir, is you 21 have not ever moved to vary the interim licence that 22 granted 30,000 CFS. You now had been using the 23 augmented flow program on the Minister's okay for 18 24 years as I understand it. Is your application before 25 this Commission to include that extra 4,000 to 5,000 318 1 CFS in your licence? 2 MR. CORMIE: What we are saying is that the 3 treatment of the augmented flow program in the future 4 is independent of whether we proceed with Wuskwatim 5 or not. 6 MR. MAYER: That doesn't answer my question. 7 In the licence you're seeking now, how much or are 8 you seeking a licence now to increase your authorized 9 flow through Churchill River Diversion from 30,000 10 CFS to a maximum of 35,000 CFS? 11 MR. CORMIE: We haven't come to a conclusion 12 yet on when we will seek a permanent change to the 13 interim licence for the Churchill River Diversion 14 incorporating the terms and conditions of the 15 augmented flow program on a final basis in the final 16 Churchill River Diversion licence. 17 MR. MAYER: But then I am assuming that you 18 would continue to seek ministerial authorization 19 under the Water Power Act for that extra, and again 20 I'm using the numbers that we have, 4,000 to 5,000 21 CFS depending upon summer or winter? 22 MR. CORMIE: That's correct. As we are doing 23 this winter, we are applying at this moment in 24 seeking that for the current water year. 25 MR. MAYER: And isn't it a little disingenuous 319 1 to suggest that there is going to be no flow changes 2 in the flow pattern on CRD when in fact, you had been 3 making flow changes on CRD pursuant to ministerial 4 direction for 18 years? 5 MR. CORMIE: But we haven't been changing the 6 flow. The rules for operating the Churchill River 7 Diversion have been identical for 18 years. They 8 have included the augmented flow program. Each and 9 every time we have applied, we have applied for 10 identical capabilities. And so to not apply would be 11 a change. To continue doing what we've been doing 12 since day one is to carry on with business as usual. 13 MR. MAYER: But that business as usual means 14 exceeding your interim licence on Churchill River 15 Diversion, right? 16 MR. CORMIE: But we're not exceeding. The 17 Minister, on an annual basis, incorporates the 18 augmented flow program as part of the licence. The 19 licence is revised each and every year on his 20 authorization. 21 MR. MAYER: I think we may have a distinction 22 without a difference, sir. I do want to clarify 23 that. I was of the impression I happen to -- some 24 people may not know this. I happen to live in 25 Thompson and I see this water come through my 320 1 community. And we were assured back in the early 2 days of Churchill River Diversion that we were 3 talking about a 30,000 CFS movement through the 4 Burntwood River. But for 18 years now, you're 5 telling us that that exceeded 30,000 CFS, and I'm not 6 suggesting there was any particular damage done here. 7 I just want to clarify the issue of this augmented 8 flow program. 9 Have you ever operated Churchill River 10 Diversion with a maximum of 30,000 CFS extra flow? 11 Sorry, with a maximum of 34,000 CFS -- 30,000 CFS or 12 did you apply immediately for augmented flow under 13 the Water Power Act? 14 MR. CORMIE: In 1976, we had the interim 15 licence. For the first period, we entered into a 16 test flow program where we operated initially at 17 10,000 cubic feet per second. Although we had a 18 licence to go to 30, we tested and we were very 19 cautious in moving from 10 to 15,000, 15 to 20, 20 to 20 30. And I am not -- my memory is not so clear that I 21 can remember whether we actually lived within a 22 30,000 limit or did we immediately recognize that the 23 limits that were put in the interim licence and live 24 within those limits for a period of time. We went 25 right into a test program to see whether additional 321 1 flows could be diverted. 2 The issue was there was a flow limit at 3 Thompson of 34,000 which was intended to limit water 4 levels. And it was immediately determined that those 5 water levels weren't achieved with those flows and 6 that higher flows could be achieved while maintaining 7 the water levels that were desired in the city. So 8 we changed it from a flow limit at Thompson, we 9 requested a change from a flow limit to an elevation 10 limit and we now regulate that diversion to an 11 elevation limit rather than a flow limit at Thompson. 12 So from the perspective of someone who lives 13 in Thompson doesn't see a change in water levels from 14 what was allowed under the interim licence. 15 MR. MAYER: We see the drought, too, by the 16 way at this point. But okay, you've got an interim 17 licence which you, under the provisions of the Water 18 Power Act and with ministerial approval, you varied 19 for every year in the last 18 years to permit up to 20 34,000 winter, 35,000 CFS in summer. Can you go any 21 higher? 22 MR. CORMIE: No, we can't. 23 MR. MAYER: And why is that? What is to 24 prevent you from asking the Minister for an extra 25 3,000 CFS under the Water Power Act? 322 1 MR. CORMIE: I would think that there's no 2 reason we couldn't ask except that we are now at the 3 limit of the physical -- the elevations along the 4 diversion route for which additional flow would 5 result in higher levels. So it was deemed that 6 certain levels needed to be avoided. And the 7 question is at what flow do those elevations get 8 triggered? Do they get triggered at 34,000 or 35,000 9 or 36,000? So we increase the flows so that the 10 level stayed within the limits that were originally 11 intended. 12 MR. MAYER: Does any of this have to do with 13 what we call the severance line at the Thompson float 14 plane base? There is a severance line there, right? 15 It's called the Hydro severance line? 16 MR. CORMIE: Yes, it's the geotechnical 17 setback line below which the lands are affected by 18 the flows along the river. 19 MR. MAYER: So -- 20 MR. CORMIE: And that has been set assuming 21 that the water levels along the river will be 22 maintained within the range that we have experienced 23 since the project started. 24 MR. MAYER: Now, this augmented flow program, 25 I am a little less concerned about what it does 323 1 downstream but I am interested in what the augmented 2 flow program does at South Indian Lake because we did 3 hear from people from South Indian Lake about the 4 water being higher than they thought or were told 5 what it was originally going to be? 6 MR. CORMIE: The augmented flow program allows 7 Manitoba Hydro to have water levels on South Indian 8 Lake as high as elevation 847 and a half feet which 9 is a half foot higher than 847 which is in the 10 interim licence. 11 MR. MAYER: Thank you very much, sir. 12 MR. ADAMS: Mr. Mayer, my name is Ken Adams. 13 We do have signed agreements with South Indian Lake 14 Community Association which incorporates the 15 augmented flow program including the changes in flow 16 and the changes in elevation on South Indian Lake. 17 MR. SARGEANT: Could I ask a follow-up of Mr. 18 Cormie? The proposed Wuskwatim Generating Station, 19 can it operate without the augmented flow? 20 MR. CORMIE: Yes, it can, Mr. Sargeant. Yes, 21 it can. 22 MR. SARGEANT: So it can operate with just the 23 30,000? 24 MR. CORMIE: Yes, it can. The water supply in 25 the Churchill River isn't sufficient to have the 324 1 Churchill River Diversion flowing at its maximum flow 2 all the time. There are periods of low flow like 3 we're having now. And the Wuskwatim project will 4 operate under low flow, it will operate under flows 5 that would be under the interim licence as well as 6 operating under the interim flow licence. 7 MR. SARGEANT: Will it operate at flow 8 capacity with a low flow? 9 MR. CORMIE: It will operate less often with 10 lower flows. 11 MR. SARGEANT: So you won't get as much out of 12 it? 13 MR. CORMIE: That is correct. 14 MR. SARGEANT: Okay, thank you. 15 MR. WOJCZYNSKI: If I could add to that. As 16 Mr. Cormie indicated, Wuskwatim can operate if we had 17 an interim licence done of an augmented flow program 18 or something in between, it would operate less often 19 at full capacity. We get less energy out of it. And 20 we did that extreme case sensitivity of what if we 21 didn't get any of the augmented flow program and we 22 only had the interim licence. And that actually is 23 the basis of the sensitivity that was presented in 24 the filings and actually I presented yesterday 25 afternoon. We referred to it nominally as the 10 per 325 1 cent reduction on the Burntwood River. And in that 2 case, the IRR dropped from 10.3 to 9.8 per cent, a 3 half per cent drop in IRR which is significant but 4 the project would still be very attractive. 5 And we have no reason at this time to believe 6 that we will not, in the long-run, receive approval 7 for the augmented flow program particularly given 8 that this is the way we had been operating it for 18 9 or even -- or 18 years. And that not continuing to 10 operate would be a change. 11 MR. SARGEANT: I think Mr. Cormie answered 12 this earlier in response to Mr. Mayer. So you're not 13 asking us, through this process, to implement 14 permanently the augmented flow program? 15 MR. CORMIE: No, we're not. 16 MR. SARGEANT: Thank you. 17 THE CHAIRMAN: To Mr. Cormie as well. Am I 18 given to understand that this augmented flow covers 19 the whole year? It's not for a period of time. We 20 referred to the 4,000 CFS in summer and 5,000 in 21 winter or vice-versa but it actually operates 22 throughout the year? 23 MR. CORMIE: That is correct. There are 24 seasonal limits, winter and summer limits, the 4,000 25 and the 5,000. The augmented flow program is 326 1 authorized May 1st to April 30th for a year. That's 2 been the tradition for 18 years. In the years prior 3 to that, it was authorized seasonally. We had a 4 winter program and a summer program. The changes 5 that occurred 18 years ago was to make it a single 6 annual application that puts seasonal limitations 7 on -- seasonal change into the interim licence. But 8 it's applied for annually. 9 THE CHAIRMAN: So all the assessments that had 10 been done had been done under this augmented flow? 11 MR. WOJCZYNSKI: All of our assessments on 12 the -- economic assessments I assume you're referring 13 to, all of them, they were all done assuming that the 14 augmented flow program would continue with the 15 exception of the sensitivity that I was referring to 16 earlier. 17 THE CHAIRMAN: With the assumption that they 18 would continue. But they are not being part of the 19 licence that you're going to seek to operate? 20 MR. WOJCZYNSKI: Yes. The licence we are 21 seeking for Wuskwatim in no way institutionalizes or 22 modifies or affects the water power licence 23 associated with the Churchill River Diversion. The 24 licences we are seeking are strictly for the 25 Wuskwatim project and they are not a barrier and do 327 1 not modify what is happening already with the CRD 2 Water Power licensing. 3 THE CHAIRMAN: But they make the assumption 4 that you will get this augmented flow on an annual 5 basis? 6 MR. WOJCZYNSKI: They make that assumption but 7 they do not -- they make -- our analyses assume that 8 the augmented flow program will continue but it does 9 not prevent the Province, if it so chooses, to change 10 the operation of CRD and have it revert to something 11 that would be more like the old interim licence 12 situation. 13 THE CHAIRMAN: Okay. It's not part of the 14 Wuskwatim proposal per se? 15 MR. WOJCZYNSKI: No, it is not. 16 THE CHAIRMAN: Do you intend to seek that 17 licence? 18 MR. ADAMS: The short answer is yes. The 19 longer answer is we're not too sure exactly when. 20 But at some point, we will apply to convert the 21 interim licence into a permanent licence and it may 22 be at that time or it may be a separate initiative to 23 incorporate the augmented flow program into the final 24 licence. 25 THE CHAIRMAN: And if I understand correctly, 328 1 I was told that the environmental assessments were 2 done under the augmented flow? 3 MR. ADAMS: Yes. 4 THE CHAIRMAN: Thank you. 5 MR. ABRA: I now propose to proceed to the 6 Summary of Understanding and the relationship between 7 Manitoba Hydro and Nisichawayasihk. Firstly, it's 8 common ground, I believe, that the Summary of 9 Understanding is not binding; am I correct? 10 MR. THOMAS: That's correct. 11 MR. ABRA: Okay. And in fact, Nisichawayasihk 12 has the alternative -- 13 MR. THOMAS: If I may, it's Nisichawayasihk. 14 MR. ABRA: I'm sorry. Can I refer to it as 15 NCN? 16 MR. THOMAS: NCN will suffice, yes. 17 MR. ABRA: Fine, thank you. NCN has the 18 alternative of deciding not to proceed with the 19 project any time up until when the generation plant 20 and the transmission lines are actually ready to go; 21 am I correct? 22 MR. THOMAS: We have a chance to make a 23 decision to go in up to the inservice date of 2010. 24 MR. ABRA: So the ultimate agreement, if 25 signed, could still be different from the actual 329 1 Summary of Understanding? 2 MR. THOMAS: I don't expect that there will be 3 significant material change with the Summary of 4 Understandings and the Project Development Agreement. 5 MR. ABRA: You see, the difficulty that we 6 have is, I am sure you understand, how can the Clean 7 Environment Commission be expected to sign off on 8 agreement that they really don't know exactly what 9 the terms are going to be? At present, it's not a 10 binding agreement. 11 MR. ADAMS: Maybe I can respond to that. 12 MR. ABRA: Sure. 13 MR. ADAMS: We're not asking the Clean 14 Environment Commission to sign off on the agreement. 15 MR. ABRA: Well, I recognize that, sir, but -- 16 MR. ADAMS: That is an agreement between the 17 Manitoba Hydro Electric Board and NCN and the terms 18 and conditions of that agreement are between us and 19 NCN. 20 MR. ABRA: But -- 21 MR. ADAMS: And we are here to examine the 22 implications of that agreement and Manitoba Hydro's 23 finances. 24 MR. ABRA: Well, that's the question, sir, is 25 it not? That's the issue that I'm raising. 330 1 MR. ADAMS: Yeah. 2 MR. ABRA: Is that we're being asked in 3 essence to approve the Hydro application and the 4 financial implications and the NCN application and 5 the financial implications that it may have for 6 Manitoba Hydro. 7 MR. ADAMS: Maybe this is another distinction 8 without a difference. But no, you're not being asked 9 to approve anything. We're asking the Clean 10 Environment Commission to look at the effects of the 11 agreement on Manitoba Hydro's finances and make a 12 recommendation to the appropriate government 13 ministers. 14 MR. ABRA: I appreciate that, sir. But again, 15 I ask how can we be expected to make final 16 recommendations in that regard as far as the 17 economics for Manitoba Hydro are concerned without 18 knowing what the final deal is going to be? 19 MR. ADAMS: Appreciate that there is 20 opportunity for the agreement to be changed 21 continuously. But as Mr. Thomas said, we do not 22 expect any significant changes in that agreement. 23 MR. ABRA: Okay. 24 MR. MAYER: Can I just jump in here? You 25 don't expect any significant changes in the agreement 331 1 and you are asking that the Clean Environment 2 Commission under the NFAAT provisions of our 3 directive to at least make recommendations that this 4 won't impact upon other Hydro customers or adversely 5 affect the finances of Manitoba Hydro. 6 But we have been told, sir, that the 7 understanding or the non-binding agreements you have 8 entered into call for, I believe call for NCN to 9 share in the revenue based on export prices, am I 10 correct, based on export sales? 11 MR. ADAMS: Yes. 12 MR. MAYER: And yet I heard yesterday that 13 export sales from Wuskwatim will only exist for the 14 first few years of the project when those -- at which 15 point the power generated by Wuskwatim is expected to 16 be used for local use. 17 MR. WOJCZYNSKI: The power purchase agreement 18 arrangement that's in the SOU and it and all the 19 other arrangements that are described in the SOU, 20 first of all, we are quite advanced in our 21 discussions with NCN. And as Mr. Thomas and Mr. 22 Adams indicated, we have no reason to believe that 23 there will be any significant changes that materially 24 affect the economics or financials to Manitoba Hydro. 25 In terms of the Power Purchase Agreement and 332 1 it's based on the export price, we have negotiated 2 that as the best indicator of what the incremental 3 benefits of Wuskwatim would be to Manitoba Hydro and 4 to the customers in Manitoba. So in the earlier 5 years, Wuskwatim is primarily there for exports. 6 In the first years that Wuskwatim is in place 7 to ensure that it's assisting in meeting Manitoba 8 domestic load, it actually will also be providing 9 substantial export benefits because if there's a 10 non-drought year, we would still be exporting 11 Wuskwatim. So it's not that starting in the year 12 2020, all of a sudden Wuskwatim doesn't help us on 13 the export market. It is still most of the time 14 Wuskwatim would still be providing energy and 15 capacity that we would be able to utilize on that 16 export market. 17 Thirdly, even later on when Wuskwatim is being 18 used to satisfy domestic load, we have concluded 19 looking at the overall picture that the export market 20 provides the best indicator in the long run of what 21 the value of wholesale energy would be to Manitoba 22 customers because that's sort of a market price. 23 And the fourth point is that if you look at 24 the other resources we might be putting in later, the 25 market price would probably be a ballpark indicator 333 1 of what those kind of costs would be. So we feel 2 having negotiated an arrangement with the export 3 price as the basis for the PPA is entirely 4 appropriate over the life of the facility. 5 MR. MAYER: Well, that's what I was going to 6 get to, the life of the facility. The phrase I often 7 hear so long as the waters shall run. You haven't 8 shut down a plant yet. And I am assuming that the 9 agreement between NCN and Hydro, if entered into as 10 presently contemplated, is expected to last virtually 11 in perpetuity; am I not correct? 12 MR. WOJCZYNSKI: That is the intent, yes. 13 MR. MAYER: And do you intend to divide or at 14 least pay your dividends based upon the export price 15 in perpetuity for that project? 16 MR. WOJCZYNSKI: There will be a review at a 17 later date of the export pricing to ensure that the 18 original intent of the negotiated arrangement is 19 still being met. But in general, the answer to that 20 is yes. 21 MR. MAYER: Then if you are no longer able to 22 use Wuskwatim power for export but require the full 23 amount of the Wuskwatim capacity for domestic use in 24 order for that agreement to not affect the other 25 customers of Manitoba Hydro, you would have to either 334 1 significantly increase your domestic rate or there 2 would have to be a significant reduction in export 3 price, right? 4 MS. WRAY: Perhaps I could say a few words 5 here. The export price, as Mr. Wojczynski has 6 indicated, is a market price which can be tested as 7 being objective and a reasonable measure for the 8 value of the plant. The domestic price that we 9 charge on the other hand has inherent in it a subsidy 10 to rate payers in Manitoba from export sales. And 11 Wuskwatim is contributing towards that subsidy, that 12 ability to keep our rates quite a bit lower here in 13 Manitoba than they would be if we were charging the 14 rates out in the open market. 15 So I'm not sure it's a simple question as to 16 how the rate payers are affected. We believe and we 17 think we have demonstrated that the rate payers of 18 Manitoba are very favourably affected by bringing 19 Wuskwatim into service not just for the period of the 20 advancement but obviously going on. Because there 21 will be occasions where we can, even beyond that 22 period, where we can export that power and those 23 export profits will feed back into a lowered Manitoba 24 rate payer rate. 25 MR. MAYER: Ms. Wray, the point I'm trying to 335 1 make, at some point Wuskwatim is not going to 2 contribute one kilowatt hour to export if your 3 projections are correct, right? 4 MS. WRAY: I don't personally think that's 5 true. And I'm not an engineer but from everything I 6 have heard in my 18 years at Manitoba Hydro, we do 7 not sell exports from an individual plant, we sell it 8 from the system. And to try and designate kilowatt 9 hours flowing from Wuskwatim to either the domestic 10 load or to the export load is somewhat artificial. 11 MR. MAYER: I wasn't going to go into that and 12 maybe we'll have to go into that a little later 13 because the whole basis for justification of 14 Wuskwatim, as I understand it, is to export the 15 excess power that will either be freed up from other 16 plants or will actually be generated as a result of 17 generation at Wuskwatim. 18 But the bottom line is, Ms. Wray, that at some 19 point in time, if your projections are correct, 20 without construction of significant other facilities, 21 at some point in time, there will be no excess power 22 from Wuskwatim or from the system without further 23 construction from the system to export any power at 24 all; am I not right? 25 MS. WRAY: I don't believe that's true 336 1 factually. I think there will always be power to 2 export because we built our system for dependable 3 flow conditions and so there will always be some to 4 export. 5 But even in the hypothetical situation where 6 we had nothing to export, at that point, our domestic 7 rate would not be subsidized by exports and it will 8 be at the same level as the rates that we are 9 charging on the export market. 10 MR. MAYER: Then you would have a 11 significantly higher -- well, based on the fact as 12 you pointed out, that net export profits, net export 13 revenue I think is the term, used to significantly 14 subsidize the present rate payers of Manitoba Hydro. 15 You either have to have firstly your export prices 16 maintain some significant difference between the 17 actual cost of production of the power and what you 18 sell it for or you're going to have to increase your 19 domestic rate significantly, right? 20 MS. WRAY: If Manitoba Hydro was no longer 21 able to export power, domestic rates would have to go 22 up. And one of the things that we're hoping to 23 achieve with Wuskwatim was to enhance our export 24 revenues and keep our rates lower. 25 MR. MAYER: Ms. Wray, then, I'm going to get 337 1 back to the original point I was getting at. You 2 have an agreement or may have an agreement and if in 3 fact you have an agreement with NCN, the provisions 4 that you have now set out are unlikely to change. 5 The provisions of that agreement, as I understand it, 6 call for the division of the equity in the revenues 7 from Wuskwatim which will have to of course be 8 measured separately if you're going to do that, based 9 upon export price. Am I right so far? 10 MS. WRAY: Yes. 11 MR. MAYER: And that will go on in perpetuity 12 and there's no contemplation of change of that 13 happening. And so that power from Wuskwatim, whether 14 it be a fiction or not, is going to be deemed to be 15 power that is being sold for export. Am I correct in 16 my understanding that that is the agreement? 17 MS. WRAY: Could you just repeat that last 18 point? 19 MR. MAYER: Your agreement requires that you 20 continue to divide the equity from the revenue from 21 Wuskwatim based on that power being sold at export 22 prices, right? 23 MS. WRAY: Yes. 24 MR. MAYER: And if and when you have no 25 ability to actually do that at Wuskwatim, you will 338 1 either be dividing more equity than is actually there 2 or you will have to increase your domestic rates? 3 MS. WRAY: I don't see it that way at all. As 4 long as Manitoba Hydro has exports, Wuskwatim will be 5 contributing towards those exports. 6 MR. MAYER: Okay. Let's assume for a moment 7 we have only at this point in time, and this is the 8 first of these agreements, so I think you have to 9 understand why the Commission has to be interested in 10 what's in them. Because if you made the same type of 11 agreement on construction at Gull and Conawapa with 12 the respective First Nations in whose resource area 13 they respectively fall, and I understand that to be 14 Tataskweyak and, I had the other one on the tip of 15 the tongue, Fox Lake, you would then end up paying 16 for or distributing equity based on export prices. 17 Not for one 200 megawatt facility but for a couple of 18 facilities, one at I believe 600 megawatts and I 19 think Conawapa at 1,300 megawatts. I may be out by 20 100 megawatts here but I don't think I'm out by much. 21 Wouldn't that change the whole financial 22 structure of Manitoba Hydro and wouldn't that then 23 virtually eliminate your ability to distribute back 24 the "net export revenue" to other consumers of Hydro? 25 MR. WOJCZYNSKI: As Ms. Wray had indicated, 339 1 our ability to -- Manitoba Hydro has made a policy 2 decision that we will not advance a project such as 3 Wuskwatim for the export market, in this case 4 Wuskwatim 2010, without the support of the local 5 people. So we're talking about NCN here. So by 6 having this partnership, we are now able to look at 7 advancing Wuskwatim and reap short-term and long-term 8 benefits to Manitobans including to the rate payers. 9 So the rate payers of Manitoba are getting over the 10 life of the facility, except for the first few years, 11 are going to get lower rates. And so there will be 12 benefits. For Wuskwatim to have been advanced with 13 this arrangement, there will be benefits compared to 14 having built Wuskwatim in 2020. 15 Second point is that, in effect, what we're 16 doing here with NCN is buying one-third of Wuskwatim 17 as a non-utility generator from NCN and the power 18 purchase price for that is exactly consistent with a 19 non-utility generation policy we have. And it's sort 20 of a standard arrangement that throughout the 21 industry is to have that kind of a pricing 22 arrangement and to have the price based on the kind 23 of structure that we've got. 24 The third thing is that no one knows in the 25 very long term what the financial -- what the rate 340 1 structures are going to be in Manitoba, whether they 2 continue with a subsidy from the export market to the 3 domestic customers or whether the rates in the very 4 long term will reflect the non-subsidized cost of 5 supply. 6 I know certainly there are intervenors who 7 present in front of the Utilities Board who have 8 concern about that cross subsidization and our policy 9 right now is that we should apply the export profits 10 to reduce the domestic rates. But there's no 11 certainty that 30, 40 years down the road that will 12 continue. So it could very well be and we'll be in a 13 situation where the customer rates will equal more 14 something like a market price in which case you 15 wouldn't see much of a difference between the export 16 price and the non-utility generation price. 17 And the last is that even if we were to 18 proceed with Wuskwatim in 2020, just for domestic 19 load, we would feel that doing it in partnership with 20 NCN and giving benefits to the local people would be 21 very beneficial to the project and would be one of 22 the factors that would make our ability to build any 23 Hydro down the road as being an important factor. 24 MR. MAYER: But, sir, and don't get me wrong, 25 I think we as a Commission find that at least this 341 1 prospect that you have entered into these 2 negotiations and that you have arrived at an 3 understanding with NCN and are jointly before us, we 4 find that prospect exciting. But I think we also 5 have a responsibility to at least investigate and 6 report to the Minister on what are the long-term 7 effects of this kind of a partnership. 8 And when you raise the issue of NUG pricing, 9 that disappoints me a little bit. Exactly how many 10 contracts do you have for non-utility generation 11 right now? 12 MR. ADAMS: I want to back up about two steps 13 here if I may. Manitoba Hydro clearly recognizes 14 that -- and let's all make the assumption that 15 Wuskwatim is profitable for the moment -- that a 16 third of those profits will belong to NCN forever or 17 as long as we have an agreement or renewed 18 negotiations. So as such, that portion of the 19 profits is not available to Manitoba customers. 20 As Mr. Wojczynski said, that's a policy 21 decision the company made and we had made no such 22 policy decision with respect to Conawapa. We are 23 working with four First Nations not two with respect 24 to the Keeyask or Gull. And there's a long way to go 25 yet but we are hopeful we can come up with a similar 342 1 or comparable type of agreement with them. 2 But in simple terms, the profit share that 3 goes to the First Nation is not available to reduce 4 rates in Manitoba. 5 MR. MAYER: I understand that. I have always 6 understood that. That isn't an issue otherwise NCN 7 would not want to be involved. The issue is trying 8 to determine how you arrive at a decision as to what 9 is profit. That's the issue, isn't it? 10 MR. ADAMS: Yeah. And as Mr. Wojczynski said, 11 what we have decided is that the best proxy for the 12 value of the energy produced in the Manitoba market 13 in the long term and in the export market in the 14 short term is the export market price. 15 MR. MAYER: That tells you the value. That 16 doesn't tell you your realized price, however, and 17 your profit has to be based on your realized price, 18 doesn't it? 19 MR. ADAMS: Profit is the difference between 20 the cost and the value of the energy that we sell. 21 MR. MAYER: No, the cost of the energy not its 22 value but what you can sell it for. There's a 23 difference, sir. 24 MR. ADAMS: No. No, no. What we sell it for 25 is the value. 343 1 MR. MAYER: No. You have just told us, in 2 fact, we know that you are selling it to local 3 customers at something significantly less than you 4 value it at and sell it for internationally. Your 5 profit has to be based on your realized price not 6 upon what you value it at. 7 MS. WRAY: I think notwithstanding the fact 8 that our income statements are set up in a particular 9 way, you could view the return of profits to the rate 10 payers as a form of dividend to the rate payers. I 11 mean right now, I agree with you there's no 12 differentiation between the revenues we get from our 13 export customers and the revenues we get from our 14 domestic customers and then you take off expenses and 15 you get what the bottom looks like, a profit. 16 But I think closer to reality to what is 17 actually happening is that you could take the export 18 profits, the net profits and they would be in fact a 19 dividend to the domestic rate payers. 20 So I think our point of view is that the value 21 of the power is best represented by the export market 22 not the domestic prices. 23 MR. MAYER: I have your position on that, Ms. 24 Wray, and I'm not sure -- I think I understand it. 25 Now, Mr. Wojczynski -- I'm sorry, if I'm pronouncing 344 1 your name wrong. 2 MR. WOJCZYNSKI: It's fine. 3 MR. MAYER: -- raised the issue of non-utility 4 generators and made references if NCN would be 5 treated as a non-utility generator and that is 6 Hydro's policy. The question I asked is how many 7 non-utility generators do you have contracts with 8 today? 9 MR. WOJCZYNSKI: At this point, we don't have 10 any non-utility generator contracts in place but we 11 have a public commitment that we made a number of 12 years ago and it's still standing. And we are in the 13 process of negotiating some of the contracts. But 14 those are confidential at this time so we can't 15 discuss the details, but we are under some 16 negotiations. 17 MR. MAYER: Then if it's a confidential issue, 18 why would you refer to your relationship or at least 19 make the comparison of your relationship with NCN to 20 a non-utility generator because we know you can't 21 talk about it and I know you can't talk about it and 22 I know you don't have any place and I know you're 23 negotiating with wind power because that's in the 24 material. 25 MR. WOJCZYNSKI: I'm sorry, I missed the 345 1 question. 2 MR. MAYER: I'm wondering how you could use a 3 non-utility generator as a justification for the 4 agreement you have to pay out the equity or the 5 dividends on Wuskwatim as if NCN was a non-utility 6 generator? 7 MR. WOJCZYNSKI: Ah, okay. I understand now 8 and that's a very good question. So if I could 9 explain. There is another way to look at this and 10 which is what I was alluding to. 11 MR. MAYER: Okay. 12 MR. WOJCZYNSKI: And this isn't as Ms. Wray 13 indicated, this isn't exactly how we structured the 14 finances. But in effect, this is one way we could 15 look at it. 16 What we have done here is said we're not going 17 to advance Wuskwatim without having the support of 18 NCN. And the way we're going to do it is that NCN, 19 in effect, owns one-third of the project and that 20 they will have a non-utility generator contract with 21 Manitoba Hydro for that project. And in the long 22 term -- that's in the long term as well as in the 23 short term. 24 So in the long term, so Manitoba Hydro will 25 own two-thirds, NCN will own one-third. And we'll 346 1 always get effectively two-thirds of the benefits, 2 NCN one-third, more or less. And once, let's say 20 3 years down the road, Wuskwatim, the additional power 4 from Wuskwatim is mainly used on the domestic market, 5 Manitoba Hydro and its rate payers will have 6 benefited a number of ways. 7 First of all, we will all be better off 8 because of the benefits from the advancement. 9 Secondly, we were able to proceed with the 10 construction of Wuskwatim at all, compared to never 11 doing it. Thirdly, when you build a Hydro project 12 earlier, in this case say 10 years earlier or eight 13 years, no, six years earlier, you get a permanent 14 benefit because the rate payers see a project which 15 has less inflation built into it. So you're always 16 better off with a project like a Hydro project to 17 build it earlier. 18 And then when it starts coming in, let's say 19 the domestic rate payers start seeing it more in 2020 20 if you like. They've got a lower cost plant that 21 they're paying for. So there's benefits right there. 22 The last benefit is that NCN owned one-third 23 of the project. They could, in effect, under a 24 different kind of arrangement, have sold it to the 25 export market and Manitoba Hydro would not have had 347 1 that available to our domestic customers. 2 But in effect, what we have negotiated here is 3 an additional benefit that Manitoba Hydro has the 4 ability to retain that power in Manitoba and use it 5 for the export, I mean for the domestic customers. 6 But what we do is buy it back from NCN who could have 7 sold it to the export market but we're paying them 8 the export market price so we can choose to use it in 9 Manitoba for Manitoba customers. 10 So Manitoba customers are better off in four 11 ways. 12 MR. MAYER: I think I might understand it and 13 I'll be able to talk to Jean a little later. My 14 apologies to Commission Counsel. I'm done on that 15 point. 16 MR. SARGEANT: I might follow up with a 17 question or two on this. Mr. Wojczynski, are you 18 saying that if there are other non-utility generators 19 that you contract with, you'll be paying them the 20 export price? 21 MR. WOJCZYNSKI: In effect, yes. We don't 22 just strictly pay the export price. Just like we do 23 with Wuskwatim, we -- 24 MR. SARGEANT: What we do is we'll take -- 25 let's use a wind resource without getting into names 348 1 or numbers, we would say what would our value -- what 2 would -- and we do the same with Wuskwatim. We take 3 exactly the same approach when we look at any kind of 4 new resources. We start off with what we call a base 5 case without this new resource, without Wuskwatim or 6 without the wind NUG or whatever, and then we do a 7 long-term evaluation for say 30 years with all the 8 various factors accounted for and we use a splash 9 model and detailed simulations. Then we add this new 10 resource, whether it's Wuskwatim, a wind NUG or 11 something else and we do another second run. And 12 then we take the difference between these two and say 13 that's the benefit we get from this resource. 14 The main driver on that is the export price 15 but it's also what imports did you offset and how did 16 it affect your thermal operation? So it's not 17 strictly the exports, it's actually the change in the 18 integrated system operation. But in effect, we flow 19 through the export price. That's the main factor in 20 there. And we did that for Wuskwatim, we did do that 21 and are doing it for any other NUG negotiations we 22 have and we use the same kind of technique if we were 23 looking at building a Conawapa or when we look at DSM 24 for example. 25 MR. SARGEANT: If you're paying a NUG the 349 1 export price and then selling it at the export price, 2 what's the advantage to Manitoba Hydro? 3 MR. ADAMS: That is a good question. We don't 4 pass it through it exactly the export price as Mr. 5 Wojczynski says, we calculate the net benefit or cost 6 to the company. We will deduct the cost of marketing 7 the risk, a cost to cover any risks associated with 8 the -- in some cases, the necessity to spill water, 9 those sorts of things. 10 To date, it has not been a big issue because 11 we haven't had a lot of update on the NUG market. We 12 certainly are in the process of reconsidering the 13 benefit to Manitoba Hydro of passing it through more 14 or less at cost and whether or not we should be 15 adding an extra margin in there to create profit for 16 the company and its customers. 17 MR. SARGEANT: And will you be recovering some 18 costs of transmission? 19 MR. ADAMS: All the incremental costs 20 associated with the costs are covered. 21 MR. SARGEANT: And as a Hydro consumer, I 22 would hope that you would at least realize some 23 profit under such an arrangement? 24 MR. ADAMS: Well, to date, we have none. 25 MR. SARGEANT: To date, you have none? 350 1 MR. ADAMS: We have none. But we are 2 conscious of that and we are actively looking at 3 whether or not we should be taking a margin on it to 4 contribute to the customers. 5 MR. SARGEANT: Thank you. 6 THE CHAIRMAN: I guess we've reached a point 7 here. Mr. Wojczynski, did you want to add to this? 8 MR. WOJCZYNSKI: Just a tiny little reference 9 that the issue that Mr. Adams was referring to that 10 we are considering in the longer term and 11 particularly for large amounts of NUGs of not doing a 12 pass-through. And that is in one of our 13 interrogatory responses and on the record if you 14 wanted to look at it in more detail. 15 MR. SARGEANT: Thank you. 16 THE CHAIRMAN: I think we have reached an 17 appropriate time for a small break. So we will 18 reconvene at ten to, sharp. 19 20 (PROCEEDINGS RECESSED AT 10:38 A.M. AND 21 RECONVENED AT 10:56 A.M.) 22 23 THE CHAIRMAN: Okay. Can we carry on with the 24 cross-examination? 25 MR. CORMIE: Mr. Chair, during our discussion 351 1 this morning on the effects on Lake Winnipeg water 2 levels from the Wuskwatim project, Mr. Farlinger 3 asked Manitoba Hydro to prepare a report on Lake 4 Winnipeg levels. And I indicated to him that we 5 could prepare a report but that the level changes on 6 Lake Winnipeg were insignificant. I'd like to 7 clarify with Mr. Farlinger whether he was satisfied 8 with that answer or he requires Manitoba Hydro follow 9 up with a written report? 10 MR. ABRA: No, Mr. Farlinger thought you might 11 have a report that would give all of the information. 12 But if you don't, that's fine. He doesn't require 13 anything further. 14 MR. CORMIE: Thank you. 15 THE CHAIRMAN: Mr. Abra? 16 MR. ABRA: Mr. Wojczynski, just on the issue 17 if there is a significant change in the future at 18 some point and one of the obvious concerns that Mr. 19 Mayer was getting at in his questioning of you was 20 the fact that in your chart that was brought up 21 yesterday, and I don't need this one, you put before 22 us yesterday the chart that shows all of your 23 projections and so on being based upon Wuskwatim 24 initially being for the purposes of export. But in 25 approximately 2020, it's anticipated to be for 352 1 domestic use. I think we're on common ground there; 2 are we not? 3 MR. WOJCZYNSKI: Yes. 4 MR. ABRA: Now, let's assume for a moment that 5 there are significant changes that occur, and in 6 particular, between the export price and the domestic 7 price to the point that it has an adverse financial 8 impact upon Manitoba Hydro. I'm sorry, sir, what I 9 was referring to is page 14 of yesterday's 10 projection. And this graph obviously is a very good 11 depiction of the agreement as far as the intention of 12 it being initially export, for purposes of export 13 and then for the purposes of domestic. And that's 14 what graph 14 depicted yesterday. 15 Now, assuming for a moment that that graph is 16 followed, and in 2020 you do start using the power 17 generated by Wuskwatim for the purposes of domestic 18 use. And if there's a significant price differential 19 at that time between domestic and export, you made 20 the comment that there is mechanism to renegotiate. 21 But has Hydro thought at all about what's going to 22 happen in that regard? 23 MR. WOJCZYNSKI: Your question was has Hydro 24 thought what would happen in that regard? And I 25 think what -- do I understand correctly, Mr. Abra, 353 1 that you're referring to when the time comes to 2 review the power purchase agreement pricing details 3 or do you mean what happens in 2020? 4 MR. ABRA: I realize we're looking a long way 5 in the future but the issue becomes are you going to 6 be coming back to a utility board, or whatever exists 7 in 2020, where any of us may be at that time, I don't 8 know, and obviously somebody is going to have to pay 9 for that difference. How is it going to be done? 10 Has any thought been given to that? 11 MS. WRAY: Perhaps I could try to answer this 12 one. The fact that there is a difference in rate at 13 that time between the export rate and the domestic 14 rate does not mean that there's a difference in the 15 value of the Wuskwatim power. It goes back to what 16 we had talked about before the break there's a 17 distinction between the value of the power and the 18 rates that happen to be charged. 19 MR. ABRA: But it does have an impact, Ms. 20 Wray, does it not, on the revenue and as far as the 21 financial statements of Manitoba Hydro are concerned? 22 You're paying more for Hydro to NCN than what you are 23 achieving on the domestic market if indeed you are 24 using that much power on the domestic market? 25 MR. WOJCZYNSKI: Mr. Abra, I think we have to 354 1 go back to the answer that I gave shortly before the 2 break and that was it had four parts to it, and I 3 don't have the transcripts so I can't read it. 4 MR. MAYER: I hope you get it the same way. 5 MR. WOJCZYNSKI: But come 2020, your 6 supposition that you ask us to make is that the world 7 unfolds exactly as this graph indicates. Around 8 2020, we start not having enough dependable energy. 9 Had we thought about that or what would Hydro do, I 10 can't remember your exact words. 11 MR. ABRA: Well, based on that graph, you are 12 going to be paying more for what Wuskwatim is 13 generating to NCN than what you are achieving with 14 selling it on a domestic market. What's the 15 implication of that going to be? 16 MR. WOJCZYNSKI: So let me pick up a few of 17 the threads from the earlier answer of that question. 18 First of all, starting in 2020, assuming the world 19 unfolds, as this graph indicates, we will be needing 20 dependable energy which Wuskwatim will supply, but 21 most years we won't have drought. And all or the 22 majority of the Wuskwatim energy would be sold on the 23 export market still and still providing export 24 revenues although they wouldn't be under the 25 long-term firm contracts but they would still be 355 1 significant export benefits available. So that's a 2 bit of a modification. 3 But over time if nothing else gets added 4 that's providing energy, then more and more of 5 Wuskwatim's average energy will get used as well. 6 But that will be ten or more years out later in time. 7 The second part of the response is that the 8 fact that we advanced Wuskwatim will already have 9 provided major benefits to consumers. And so at that 10 time, in 2025 or 2030, when a large portion of 11 Wuskwatim will start to be used even in the 12 non-drought years for domestic load, the domestic 13 customers are much better off than if we waited to 14 build Wuskwatim later on and tried to build it even 15 without a partnership. 16 The third part is that we are believing that 17 having a partnership is good through the whole time 18 frame and so the fact that we may at some point be, 19 in effect, using some of the Wuskwatim energy for 20 domestic load, even though for a portion of that, we 21 are paying, in effect, NCN an export price, we feel 22 that that is entirely appropriate and that overall, 23 Manitoba customers are better off with this 24 arrangement than without it. And it's part of a 25 negotiated package and arrangement. 356 1 And the overall package, including the fact 2 that we are using the export price as the market 3 indicator, we feel that that is a long-term interest 4 of Manitoba Hydro and its rate payers and part of the 5 package deal. 6 MR. MAYER: Thank you very much for that. I 7 mean I'm glad we had the break when we did. I 8 understand now what you're saying. You're going to 9 use NCN's resource area. You're going to make 10 whatever interruptions there are in the traditional 11 lands. You are going to use your partner's, what 12 they perceive in any event and which I think they are 13 correct, as their resources. You're going to make 14 your money up front and if it costs you a little bit 15 at the back end or it costs our customers a little 16 bit at the back end, you're saying you've taken that 17 into consideration and you believe that the rate 18 payers of Manitoba, over the full term of the life of 19 this project, it's worth it. 20 MR. WOJCZYNSKI: Yes. 21 MR. MAYER: Thank you, sir. 22 MR. ABRA: And there is a mechanism to 23 renegotiate the price? 24 MR. WOJCZYNSKI: What there is, I can't 25 remember if it's 30 or 35 years, 35 years after -- 25 357 1 years. After 25 years into the contract, there is a 2 review of the pricing mechanism but it's not to 3 change the fundamentals. It's to say that the way we 4 structure the details of it meet the original intent. 5 MR. ABRA: Now, let's go back to the original 6 intent and I just have a couple of questions. You've 7 given significant evidence yesterday, both NCN and 8 the representatives from Hydro gave evidence 9 yesterday and described the desire to have a 10 partnership between the two. Was any consideration 11 given to structuring it in a manner other than a 12 limited partnership or what was the reason for 13 structuring it as a limited partnership in the manner 14 that you have? 15 MR. WOJCZYNSKI: We did have an interrogatory 16 on this and I can pull it out if you'd like. But in 17 it, we had indicated that the primary reason -- we 18 did look at a whole bunch of structures and the 19 primary reason we went to the LLP was so that the 20 profits or benefits are taxed in the hands of each of 21 the proponents. 22 MR. ABRA: Could that not have been done by 23 making it as a corporation with both entities being 24 shareholders? 25 MR. WOJCZYNSKI: There are many different 358 1 approaches. In the end, we concluded jointly that 2 was the best approach to take. 3 MR. ABRA: That was a mutual decision? 4 MR. WOJCZYNSKI: That was a mutual decision. 5 Yes, sir. 6 MR. ABRA: I assume, although correct me if 7 I'm wrong, that there was advice received of a legal 8 and financial nature, for example, by both NCN and by 9 Manitoba Hydro in that regard? I'm not asking for 10 what it was but I'm just asking to confirm that there 11 was. 12 MR. WOJCZYNSKI: Speaking on behalf of 13 Manitoba Hydro, yes. 14 MR. ABRA: Mr. Thomas, you testified yesterday 15 that there was, sir. 16 MR. THOMAS: Yes, that's true. 17 MR. ABRA: You did receive, I understand, 18 independent financial and legal advice with respect 19 to this issue? 20 MR. THOMAS: Yes, that's true. And we felt 21 that the limited partnership provided us with the 22 best option to ensure that our interests were 23 protected in the way that we would like as a First 24 Nation. 25 MR. ABRA: The advisors that you obtained it 359 1 from, sir, were independent of Manitoba Hydro 2 totally? 3 MR. THOMAS: Yes. We have operated all along 4 with our own independent advisors and we prefer to do 5 things that way. 6 MR. ABRA: No, that's fine. Just let me ask 7 you, sir, did you also have any consultation or did 8 you have independent consultants on the issues 9 related to the environment and the engineering 10 components of what was being done or what was 11 intended with respect to the Wuskwatim project? 12 MR. THOMAS: We have our own engineering 13 advisor sitting right beside me that is independent, 14 works with NCN. And we have other people that we 15 have working for us jointly. And we take our own 16 positions as NCN, depending on whether or not the 17 position that we're taking is indeed in the best 18 interests of our people. 19 MR. ABRA: No, that's fine. But what I'm 20 asking, sir, is that there were a series of witnesses 21 that testified yesterday and I believe most of them 22 were in fact retained by Hydro with respect to the 23 environmental issues. Or were some of them NCN 24 consultants or were they both? 25 MR. THOMAS: The EMT, the Environmental 360 1 Management Team, is a team that was chosen by both 2 NCN and Hydro to look into the environmental issues. 3 And so we do have a joint team that works with us. I 4 didn't hire independent people solely for that 5 particular purpose. We decided that the best way to 6 do it was to work together cooperatively to make sure 7 that we looked at everything that needed to be looked 8 at. 9 MR. ABRA: The team that was testifying 10 yesterday then represented both NCN and Hydro? 11 MR. THOMAS: Yes. 12 MR. ABRA: Thank you, Mr. Thomas. When you 13 said, just going back from a moment, Mr. Wojczynski, 14 to the structure that was chosen, you decided that 15 the limited partnership was the best structure to 16 follow with respect from the benefit of both Manitoba 17 Hydro and NCN? 18 MR. WOJCZYNSKI: Yes. 19 MR. ABRA: Are there any risks that are 20 inherent to either NCN or Manitoba Hydro as far as 21 the limited partnership aspect structure is concerned 22 that would have not been present in other corporate 23 structures? For example, there are occasions, I'm 24 not a tax lawyer but I know enough about it I think, 25 whereby either limited partners in a limited 361 1 partnership, if they take on too much responsibility, 2 can in fact lose their limited partner status? 3 MR. WOJCZYNSKI: Speaking on behalf of 4 Manitoba Hydro, there was an interrogatory to that 5 effect as well, and there is, I'm obviously not going 6 to be able to give a legal opinion here and you're 7 not asking for one, as the Manitoba Hydro general 8 management, we are aware, fully aware that there is a 9 possibility that under the LLP arrangement that we 10 may not have, under certain circumstances, the 11 limited liability protection. But we are fully aware 12 of that and cognizant of it and that that would 13 not -- what we would come back to is if we lost that 14 limited liability protection, we'd come back to the 15 situation, be exposed to the same risks we had been 16 in if we did not have the partnership. So we did not 17 view this as increasing our risks, at least not in 18 any significant or material way. 19 MR. ABRA: Do I understand you to be saying 20 that the risks that had been identified in the event 21 either Hydro or NCN lose their limited partnership 22 status are no more significant than the risks that 23 would have been present if it had not been a limited 24 partnership? 25 MR. WOJCZYNSKI: Speaking on behalf of 362 1 Manitoba Hydro, that's the case, yes. 2 MR. ABRA: Mr. Thomas, with respect to NCN? 3 MR. THOMAS: Same for NCN. 4 MR. ABRA: That's the advice you received, 5 sir? 6 MR. THOMAS: Yes. 7 MR. ABRA: Now, the summary of understanding 8 does provide that notwithstanding the existence of 9 the limited partnership, that NCN does have the right 10 to seek compensation in any event; am I correct? 11 MR. WOJCZYNSKI: Yes. 12 MR. ABRA: Has there been any discussion under 13 what circumstances NCN would be seeking compensation 14 in addition to the limited partnership structure 15 which is contemplated with respect to the development 16 of Wuskwatim? 17 MR. WOJCZYNSKI: If I can just see if I can 18 understand your question. When you mentioned the 19 word compensation, my interpretation of your question 20 is that we are referring, and there was an 21 interrogatory in this area as well so I'm not sure if 22 it is the same question. If NCN is going to be 23 seeking compensation for adverse effects? 24 MR. ABRA: Yes, that's right. 25 MR. WOJCZYNSKI: Okay. What we've 363 1 contemplated is that NCN would have the ability to 2 seek compensation and that there would be an adverse 3 effects agreement as part of the overall final 4 agreement. And as such, compensation would 5 compensate NCN and its members directly for any 6 adverse effects that were not mitigated already. And 7 this would be separate from the benefits from the 8 partnership agreement per se. 9 What I mean by that is that regardless of 10 whether NCN and Manitoba Hydro has a partnership, 11 there would be an adverse effects agreement mutually 12 agreed upon to deal with the adverse effects. So the 13 partnership and its additional benefits that are 14 brought are additional to that. 15 MR. ABRA: Now, you've indicated in your 16 material or in your documentation that compensation 17 costs have been estimated to some degree in the event 18 that there's adverse effects. How has that estimate 19 been determined, sir? Maybe Ms. Wray is the best one 20 to answer that. 21 MR. WOJCZYNSKI: No. That compensation, as 22 indicated in our interrogatories, we couldn't reveal 23 that given that that's a negotiation between NCN and 24 Hydro that we still have to complete. But on our 25 part, when Manitoba Hydro now I'm talking about 364 1 because we did -- this is one thing we did not do 2 jointly because this is part of the negotiations, is 3 we estimated at Manitoba Hydro an amount for the 4 compensation and we've included in our capital costs 5 the partnership as a whole will pay for this 6 compensation. But how it was determined was looking 7 at the information that was made available through 8 the environmental assessments including the 9 traditional knowledge. And we took a look at that 10 and looked at what had been done in other situations 11 and what economic loss or any other parameters were 12 and made an estimate on that basis. 13 MR. ABRA: Okay. 14 MR. MAYER: Who would the compensation 15 agreement be with? Between NCN and Manitoba Hydro or 16 between NCN and the partnership? 17 MR. WOJCZYNSKI: Subject to check, that is 18 between the partnership and NCN. 19 MR. MAYER: And so there proved to be 20 compensation as, for example, the routing of the 21 transmission line which NCN does not have the piece 22 of or isn't intended to have a piece of, you would 23 have to compensate NCN for any of the effects of the 24 power line, the transmission line going through their 25 resource area. That compensation would be paid for 365 1 by the partnership or would it be paid for by 2 Manitoba Hydro in light of the fact that NCN does not 3 have any piece of the transmission project? 4 MR. WOJCZYNSKI: I was referring to 5 compensation on the generation side. You are very 6 correct in pointing out that there are other 7 compensation on the transmission side that 8 potentially there that would be actually between 9 Manitoba Hydro and NCN or any other affected parties, 10 trappers or whoever. And that would be there 11 regardless of the partnership. In that case, it 12 would be between Manitoba Hydro. And I actually 13 should have mentioned that. Thank you for pointing 14 that out. 15 MR. ABRA: The Summary of Understanding also 16 provides I believe that payment to NCN will be based 17 upon the maximum amount of generation each day, am I 18 correct, from the plant? 19 MR. WOJCZYNSKI: I believe what you're 20 referring to is the arrangement and the power 21 purchase agreement where we have two components. One 22 is for the on peak and the other is for the off peak. 23 MR. ABRA: Yes? 24 MR. WOJCZYNSKI: So we take the on peak 25 portion that's produced, the energy that's produced 366 1 over the on peak hours and then value that at the 2 long-term prices we have. And then we take the off 3 peak and value it at a lower price related to the 4 opportunity market. 5 MR. ABRA: My understanding is, sir, 6 notwithstanding that there's two components, one 7 being on peak and one being off peak, that it's based 8 upon 100 per cent of the generated power being sold 9 assuming, therefore, that there isn't going to be any 10 spillage; am I correct? 11 MR. WOJCZYNSKI: Yes. 12 MR. ABRA: So if you are spilling water 13 because you're unable to sell all of the power that 14 you could generate, whether on peak or off peak, you 15 still will be paying to NCN a rate that would be 16 reflected as if you had sold the power to the 17 partnership? 18 MR. WOJCZYNSKI: There are -- 19 MR. ABRA: Not NCN, I'm sorry, to the 20 partnership. You'd be paying the partnership. I'm 21 sorry, I misspoke. 22 MR. WOJCZYNSKI: There's the two -- the people 23 at Hydro hate me. I always talk in threes. There 24 are three kinds of situations here. One is where we 25 spill at Wuskwatim because there might be more water 367 1 coming into the plant than we have the capability to 2 use. And Wuskwatim would not get paid for that. 3 That just gets spilled over the spillway at Wuskwatim 4 and there's no payment to Wuskwatim for that. 5 The second kind of situation is where 6 Wuskwatim is capable of producing power but because 7 there's local transmission problems, we can't 8 actually get it all out of Wuskwatim. And we've got 9 a strong transmission system put in place where that 10 very rarely happens. But every once in a while, very 11 infrequently, we would have a situation where we 12 couldn't get everything out because too many 13 transmission lines were down or there's some other 14 contingency. 15 And so there would be a little bit of energy 16 which Wuskwatim, over the long run, could have 17 produced which doesn't get paid for and it's 18 insignificant. 19 There are other situations where there may be 20 spilling in other places in the system but if we can 21 take the Wuskwatim power and get it to the export 22 market, then that still provides us value and we'd be 23 paying for it. 24 But in effect, when we determined what benefit 25 Wuskwatim brings to the system and the amount of time 368 1 that we have to pay Wuskwatim for spilled energy that 2 is not utilizable by the system, it's very very 3 small. It would be a fraction of a decimal on any of 4 the kind of numbers we'd be looking at. 5 MR. ABRA: You're satisfied of that? 6 MR. WOJCZYNSKI: Yes, we are. 7 MR. ABRA: And was that clause put in really 8 to protect NCN as far as its financial planning and 9 so forth was concerned? 10 MR. WOJCZYNSKI: Well, that was put in to 11 provide certainty on applying the pricing so that we 12 don't get into disputes. 13 MR. ABRA: For both sides of the partnership? 14 MR. WOJCZYNSKI: For both sides of the 15 partnership. The primary objectives in any kind of 16 business contractual arrangement is that you have 17 clarity and unambiguity? Okay, it's clear. 18 MR. CORMIE: Clarity. 19 MR. WOJCZYNSKI: Clarity. That we want 20 clarity so there aren't disputes. That's the 21 objective. 22 MR. MAYER: I'm going to jump in here again. 23 You talked about getting Wuskwatim to export. I 24 heard exactly what Ms. Wray said about that's a 25 fiction in any event. But if this project is 369 1 approved and if completed, is there any way you can 2 get Wuskwatim power onto your high voltage DC lines? 3 MR. MAZUR: No, there is not directly any 4 connection. There is some possibility through the 5 existing system of getting some of the DC units onto 6 the AC system but not the other way. Today we can. 7 Once the transmission system is modified and it's 8 being modified right now, we will not be able to do 9 that. 10 MR. MAYER: So let's be frank when we talk 11 about getting Wuskwatim power out for export. You 12 have no ability to do that because you can't transmit 13 AC that distance financially, can you? 14 MR. MAZUR: AC power is transmitted. All of 15 the Wuskwatim export or output can be moved. It's a 16 displacement of power. It can be moved almost 17 anywhere you want. It's a matter of where is the 18 economic break even point as far as losses? 19 MR. MAYER: Okay. I understand and that's 20 what I thought. But when we say getting Wuskwatim to 21 export, what you really mean is that you will get 22 Wuskwatim power into Thompson because I think you can 23 take Kelsey power back over your DC lines; can you 24 not? 25 MR. MAZUR: With some of the modifications and 370 1 the DC capability, we have been able to do that in 2 the past. 3 MR. MAYER: But if you can free up power from 4 Inco's process in Thompson which uses a lot of power 5 for those electric furnaces and divert again the 6 power which I think some of which comes from Grand 7 Rapids into some of the other areas north of 53, by 8 diverting that power, you make available other power 9 possibly from Grand Rapids, possibly from Kelsey. It 10 becomes available for export and that's what you mean 11 by getting Wuskwatim power to export, right? 12 MR. MAZUR: I think it was said by Ms. Wray 13 and others here that we sell system participation 14 power. And that means power is coming from anywhere 15 in our system depending on what plants are scheduled 16 and it can be a displacement. To say that one would 17 sell a megawatt from Wuskwatim to Florida might, in 18 fact, be true but I'm not sure how you would trace 19 those electrons. 20 MR. SARGEANT: Can I follow up? Going back to 21 your last three points, Mr. Wojczynski. Does this 22 mean that Wuskwatim will change some of Hydro's 23 operating procedures in that if there's a low demand 24 period, Wuskwatim will continue to run while other 25 stations are either shut down or reduced? 371 1 MR. CORMIE: Mr. Sergeant, we intend to 2 include Wuskwatim generation into our generation 3 portfolio and operate it as if it were completely a 4 Manitoba Hydro plant. And we will not treat it any 5 differently because of the partnership relationship. 6 And so from an operating perspective, the ownership 7 agreement -- the relationship with NCN does not 8 affect the way we would operate it. 9 MR. SARGEANT: But if there's a low demand 10 time and you shut down one or two of the units at 11 Wuskwatim, do you still have to compensate NCN? 12 MR. CORMIE: As long as it doesn't result in 13 spillage, the energy will be stored in the forebay 14 temporarily, either in the local forebay or in the 15 Nelson River forebay. 16 MR. SARGEANT: Okay. 17 MR. CORMIE: Those are financial arrangements 18 that take place -- those are calculations that take 19 place after the fact. They are not something that we 20 need to worry when we're dispatching the plant. 21 MR. SARGEANT: Because of this agreement, 22 Wuskwatim doesn't become sort of the top priority 23 producer -- 24 MR. CORMIE: No. 25 MR. SARGEANT: -- in the system? 372 1 MR. CORMIE: We will dispatch the Wuskwatim 2 Generation in the most economic and efficient manner 3 in the same way we dispatch all our other generation. 4 THE CHAIRMAN: Can I carry on with a question 5 which was asked a while ago in regards to the 6 compensation? We said that compensation in regards 7 to the generation side will be between NCN and the 8 partners. 9 MR. WOJCZYNSKI: Yes. 10 MR. ABRA: NCN has to obtain a favourable vote 11 from the NCN membership before they'll sign onto this 12 project. So I gather it's in their interest to know 13 or to see the final negotiated package before they 14 ever sign on. And I heard you say that negotiations 15 were ongoing in this regard. I don't want to know 16 the particulars of the amounts but I want to know 17 what the components of that negotiated package will 18 be. 19 MR. WOJCZYNSKI: The package will contain all 20 the elements that we have talked about earlier that 21 are in the SOU. There are a number of different 22 agreements. We've got the partnership agreement, 23 we've got the operation and maintenance. We've got 24 financing and there are other agreements. And we 25 could go through them if you'd like but one of those 373 1 in the overall package of agreements -- 2 THE CHAIRMAN: I'm not talking about the 3 partnership agreement, I'm talking about the 4 compensation. 5 MR. WOJCZYNSKI: Oh, the components of the 6 compensation? 7 THE CHAIRMAN: That's correct. 8 MR. WOJCZYNSKI: We haven't -- that's in the 9 middle of negotiations and I don't think I could 10 really bring that forward at this time. 11 THE CHAIRMAN: Well, I heard you say a while 12 ago that you were in the process of negotiating. So 13 you are negotiating about redressing or compensating 14 for something. Mr. Thomas? 15 MR. THOMAS: We have an agreement that was 16 ratified in 1996 which is referred to as the Northern 17 Flood Agreement Implementation Agreement. And in 18 that agreement, we have an Article 8 provision that 19 requires Manitoba Hydro to consult with my people 20 before they start planning or planning on developing 21 any other future development within our traditional 22 territory. That provision requires that they obtain 23 our consent prior to the start of any construction. 24 And compensation issues must be addressed as well. 25 We're looking at a number of different 374 1 possibilities within that scheme and we haven't 2 actually finalized anything yet. But we do expect 3 that we will identify the parameters that we're going 4 to be covering in the compensation issue within a 5 reasonable period of time that will allow us enough 6 time to take the information to our people in order 7 for them to be fully informed as possible for them to 8 make informed decisions when they do vote. 9 What we do in that arena is still subject to 10 discussion and negotiation amongst the parties. And 11 so we don't have the final complete package at this 12 point in time to be able to say this is what it is 13 going to look like. 14 THE CHAIRMAN: Well, I'm a bit disappointed 15 because I've heard two non-answers here. And I 16 presume the NCN membership is also hearing 17 non-answers. And I think that it's very difficult to 18 expect the NCN membership and the panel here to 19 accept that as there's no components at this time 20 that are looked upon as being negotiated. I mean 21 between having the whole package and having none of 22 it, there's got to be a measure. 23 MR. THOMAS: I forgot to mention that the 24 agreement that we currently have in place requires 25 that we look at compensation issues with regard to 375 1 the adverse effects that could possibly materialize 2 from this project. So we do have that as a component 3 that we need to look at. 4 In addition, if for some reason my people 5 decide that they don't want to have a partnership 6 with Manitoba Hydro based on the terms and conditions 7 that will be included in the project development 8 agreement, then we would have to look at the 9 compensation issue because we will have possibly 10 construction happening and we have to look at that 11 issue. And if the project is to go ahead, which 12 Hydro has said that it will not go ahead if they 13 don't obtain our consent. But if that were a 14 possibility to continue to move forward, compensation 15 will definitely be an issue with our people. 16 MR. WOJCZYNSKI: Perhaps, Mr. Chair, I can 17 make one small addition to what I said earlier and 18 that was that we haven't completed any aspect of that 19 compensation discussion. One of the reasons is that 20 we wanted to have a full EIS and before really 21 finalizing such discussion, we wanted to have the 22 benefits of the public hearings that we're in so that 23 we don't think there's going to be any surprises but 24 it's always good to have gone through the whole 25 process to assure ourselves of that. 376 1 The other comment is that there's nothing 2 we've seen in our discussions and nothing we've seen 3 from the environmental impact studies, whether it's 4 traditional knowledge or the western science 5 knowledge, that causes -- we are confident from all 6 of that that the buffer that we had put in, our 7 estimate is sufficient to cover the compensation that 8 we -- the amount that we'll ultimately agree to. 9 THE CHAIRMAN: Thank you for that for now. 10 MR. ABRA: How can we be confident of that, 11 Mr. Wojczynski? I say that with all due respect, 12 sir. I'm not trying to be facetious, believe me. 13 MR. ADAMS: One always hesitates or is 14 reluctant to forecast the outcome on negotiations and 15 that's what that is. 16 In the agreement that Mr. Thomas referred to, 17 there is a process to move to binding arbitration if 18 we're unable to come to a reasonable agreement. And 19 all I can do is offer assurance from Manitoba Hydro's 20 perspective that we will not enter into any 21 compensation agreement that we don't consider to be 22 reasonable. And if we can't come to agreement with 23 NCN, then we refer it to arbitration. 24 MR. ABRA: Is it contemplated at present that 25 the only compensation that is payable relates to 377 1 adverse effects that may occur after the building of 2 the transmissions lines and the power generator? In 3 other words, if the limited partnership proceeds, if 4 the development agreement is eventually signed with 5 the concurrence of the membership of NCN, then NCN's 6 share will be what is derived from the partnership 7 and there will only be compensation paid arising from 8 adverse effects or could there be compensation in 9 addition to NCN's share of the limited partnership? 10 MR. ADAMS: I think I understand the question, 11 Mr. Abra. If I understand it correctly, Manitoba 12 Hydro's perspective is that the only compensation 13 paid is for adverse effects, period. 14 MR. ABRA: Is that agreed, Mr. Thomas? 15 MR. THOMAS: Based on my understanding of the 16 agreement, that's the only area that's referenced in 17 terms of compensation. So if there is to be anything 18 else, I suppose that's an issue that will have to be 19 discussed with Hydro. 20 MR. ABRA: But as you said earlier in the 21 event that the members of NCN decide not to go along 22 with the agreement, then as you've said, if the 23 transmission line and the generator power component 24 are built, you would expect compensation to be 25 negotiated in that regard? 378 1 MR. THOMAS: I also mentioned that as I was 2 providing the answer, that Hydro did make a statement 3 that it would not proceed with the project if my 4 people decided that they didn't want the project. 5 However, having said that as well, the vote is 6 expected to occur prior to the start of construction. 7 And we have until 2010 to make a decision as to 8 whether or not we want to continue to move forward 9 based on the direction that we had received. And if 10 the circumstances have changed quite significantly 11 that requires us to change our minds about 12 proceeding, then you will have had construction 13 activity occur over a given period of time already. 14 And for that situation, we would definitely need to 15 talk about compensation issues and in what form it 16 would come about. That would depend on what types of 17 discussions and negotiations we have amongst the 18 parties. 19 MR. ABRA: What percentage of your membership 20 must vote in favour, Mr. Thomas? 21 MR. THOMAS: Based on our past referendums, we 22 have Indian Act legislation, as you are probably 23 aware, that governs referendums on reserve. That 24 requires a double majority where 51 per cent of all 25 eligible voting members must participate. And in 379 1 addition, 51 per cent must vote in favour of anything 2 in order for it to be considered as binding. 3 In this kind of situation, we're talking about 4 an issue that is not specifically on reserve. And 5 we, I believe, may not necessarily be bound by those 6 kind of rules. However, we did say that we would go 7 by way of referendum. And also past practice has 8 also provided us with what is generally expected of a 9 referendum. So 51, 51 generally is the rule. 10 THE CHAIRMAN: Can I ask another question, Mr. 11 Thomas, which is something I didn't understand. You 12 say you have until 2010 to vote on the partnership 13 issue. And yet you say you have a commitment on the 14 part of Hydro, they will not proceed if they do not 15 have a favourable vote from NCN. So if they start 16 construction next year, your vote has to be before 17 they start, not till 2010. 18 MR. THOMAS: The vote would occur prior to 19 the -- prior to the start of construction. And if 20 the result of the vote is positive, that would give 21 the parties the go-ahead to proceed, to start 22 construction. However, we do have a provision in our 23 arrangement that we would have up until 2010 to 24 decide whether or not we want to continue to move 25 forward as Chief and Council. 380 1 THE CHAIRMAN: In the partnership? 2 MR. THOMAS: In the partnership, yes. 3 THE CHAIRMAN: So in effect, you could have 4 the project completed without being partners in the 5 project? 6 MR. THOMAS: That could happen, yes. 7 THE CHAIRMAN: Okay. 8 MR. MAYER: Back when we were discussing the 9 time-tabling of these hearings, I listened to a whole 10 bunch of people on the other side of the room tell me 11 that we should have these hearings completed and a 12 decision rendered by December 31st, 2003. And I 13 heard Hydro say they could meet those time lines. I 14 heard NCN say they could meet those time lines and I 15 heard Conservation say they could meet those time 16 lines. And now I am hearing that a document and an 17 agreement that is essential before you could start 18 construction, which you had planned to do according 19 to your original proposal this winter, to wit now, 20 and you don't, as yet, even know the components of a 21 compensation agreement that are absolutely essential 22 for you to have before you can knock one tree down. 23 Am I correct? 24 MR. WOJCZYNSKI: We do not have a compensation 25 agreement negotiated yet. And as I indicated in my 381 1 earlier answer, one of the reasons for that is that 2 we wanted to have the review process essentially 3 complete before we finalized or had our major final 4 negotiations on that. 5 MR. MAYER: But you sound to me like you're 6 some distance away and it sounds to me like you're 7 still some distance away from arriving at a complete 8 package which, as I understand it, you have to have 9 before you can even go to vote. If we hadn't been 10 successful in getting these matters done and in fact 11 approvals granted by the 31st of December 2003, are 12 you telling me that you are only a month or two away 13 from arriving at those agreements and putting the 14 matter to a vote? I didn't think so. 15 MR. ADAMS: No, I would like to respond to 16 that one. When we were before the Commission, and 17 I've forgotten the exact date, sometime last spring. 18 MR. MAYER: Well, I wasn't there in spring, I 19 was there in the fall. 20 MR. ADAMS: Last summer. We had said that if 21 we were able to start construction this winter, then 22 we'd have the thing in service by 2009. When it 23 became apparent to us that we were not going to be in 24 a position to start construction this winter, we 25 backed off on a lot of activities. We tried to 382 1 reduce expenditure, reduce commitments. And as Mr. 2 Wojczynski says, a little bit is chicken and egg. We 3 can't finalize agreements until we know what the 4 environmental licences are going to look like. We 5 can't get votes until you've got agreements 6 finalized. But we have no reason to believe that we 7 will not be able to put together all the appropriate 8 agreements in a time period between now and this fall 9 when we need to start construction. But we're not 10 trying to protect the 2009 inservice date. 11 MR. SARGEANT: Mr. Thomas, have you set a date 12 or a possible date for the next referendum? 13 MR. THOMAS: We haven't set any specific 14 dates. We do have a particular time frame that we're 15 looking at sometime towards the end of the summer 16 that we would do this. So we've, I should point out, 17 operated on a very very tight and heavy schedule with 18 regard to our discussions on negotiations. There are 19 very many areas to cover. And as a team, that 20 involves both Hydro people and also my own people. 21 We have been able to handle all the various 22 situations that we've encountered up to this point in 23 time. So it may appear that we do have a very short 24 time frame to look at and try and do the impossible 25 within a short period of time. We've proven 383 1 ourselves time and time again and that we have the 2 capacity to do a lot of things that some people may 3 not think that we are capable of. But nonetheless, 4 we do and our people end up being quite informed 5 about what it is that we're doing and what it is that 6 we expect them to know about and vote on. So even 7 though the time frame is tight, we don't doubt that 8 we have the capacity to be able to handle that. 9 MR. SARGEANT: Thank you. I was mainly 10 concerned that your referendum would accommodate 11 Hydro's schedule. And clearly it does. Thank you. 12 MR. WOJCZYNSKI: Mr. Chair, if I could perhaps 13 add to my earlier question. And perhaps part of what 14 you're asking is what kind of topics are we looking 15 at in the adverse effects area? And some examples of 16 the topics we're looking at and some of the kinds of 17 topics we'd have to address in the baselines have 18 been established, as Mr. Thomas was saying, by 19 earlier agreements. But some of the topics that 20 would be part of the discussions are commercial 21 fishing, domestic fishing, commercial trapping, 22 domestic trapping and country foods are some good 23 examples of the topics that are under discussion. 24 THE CHAIRMAN: Heritage resources? 25 MR. WOJCZYNSKI: I'm sorry? 384 1 THE CHAIRMAN: Heritage resources? 2 MR. WOJCZYNSKI: Yes. 3 MR. MAYER: If everything in your impact 4 statement is correct, shouldn't be allowed to 5 compensate for it because I heard most of them are 6 insignificant or very localized. You don't have to 7 answer that. 8 MR. ABRA: Just one quick question by way of 9 confirmation. You did answer this in one of the 10 interrogatories. But you used the term short-term 11 firm export contracts. There's of course reference 12 in the actual summary of understandings to long-term 13 firm transaction rates and opportunity transaction 14 rates. They are two separate concepts. According to 15 the IRR, and I just wanted to confirm it, the 16 short-term firm rate for an export contract comes 17 under the definition of an opportunity transaction 18 rate; am I correct? 19 MR. CORMIE: Yes, that's correct. 20 MR. ABRA: Thank you. Just one final question 21 then on the area of the Summary of Understanding. 22 This is contemplated to be a partnership with 23 financial interests of both, financial contribution 24 from both. What assurances does Clean Environment 25 Commission have that NCN will be able to finance its 385 1 portion of the agreement, Mr. Thomas? 2 MR. THOMAS: We look at a number of different 3 options with respect to us being able to acquire the 4 equity that we need for this particular project. We 5 do have financial resources that are available to the 6 First Nation. I am not sure whether or not I should 7 disclose this kind of information. It is 8 confidential and I don't believe that it's 9 necessarily within the scope of the terms of 10 reference but we do have sources that we can look to 11 to ensure that we can get in on or satisfying our 12 equity needs. 13 MR. ABRA: Well, I'm not asking you to 14 identify the sources, sir, but is it something that 15 is being investigated now and being negotiated and so 16 on? 17 MR. THOMAS: We are in the process of planning 18 as a community how we're going to handle the 19 situation. And yes, we do have plans that are 20 unfolding that are designed to meet the needs that 21 are required for our equity contribution. 22 MR. ABRA: But do I understand then at this 23 juncture, you have not actually begun negotiating 24 with any potential lenders with respect to your 25 equity position? 386 1 MR. THOMAS: We've not negotiated 2 specifically. We have had discussions but we have 3 not come to any final conclusions at this point in 4 time. And those things are still under way. I would 5 hate to jeopardize our positions by getting into the 6 detail. 7 MR. ABRA: I understand. But you have had 8 some preliminary discussions with some potential 9 lenders. Is that what I understand? 10 MR. THOMAS: Yes, we have. 11 MR. ABRA: And what happens if you're unable 12 to secure the financing? 13 MR. THOMAS: Well, it means that we won't be 14 able to make a contribution and we won't own 15 one-third of the project. 16 MR. ABRA: Okay. And what about Manitoba 17 Hydro's perspective? 18 MR. WOJCZYNSKI: From Manitoba Hydro's 19 perspective, we would pick up, if NCN, for whatever 20 reason, chose to not subscribe to the full 33 per 21 cent that's available to them, we would pick up the 22 rest of the units. 23 MR. ABRA: And has there been any financial 24 planning done in that regard in the assumption, 25 granted at this point it would merely be an 387 1 assumption that NCN is not able to meet its financial 2 commitments? 3 MR. WOJCZYNSKI: We haven't done any explicit 4 planning in that regard but we are familiar with the 5 situation sufficiently that we are confident that 6 that would create no problems. And all it would mean 7 is that Manitoba Hydro would own a larger portion of 8 it. And we don't view that as being a difficulty in 9 terms of our finances at all. 10 MR. ABRA: But then it becomes a compensation 11 aspect if you proceed with the project? 12 MR. WOJCZYNSKI: We're coming back to that 13 compensation question. Maybe I can say something 14 that might be helpful here. 15 MR. ABRA: Anything you say will be helpful, 16 sir. 17 MR. WOJCZYNSKI: If I could just back up 18 without us going through that whole conversation we 19 had earlier because there's probably something in the 20 background that is a bit confusing and I know this is 21 a very complicated topic. 22 With respect to Manitoba Hydro and NCN's 23 interactions on Wuskwatim, if I could just simplify 24 it to two parts right now. One is the adverse 25 effects compensation to NCN for impacts on the 388 1 project, whatever they are. The others are 2 partnership agreement for NCN to be a co-proponent 3 and a co-owner in the project. Those two are 4 independent exercises. 5 The way we are structuring this and 6 negotiating and almost by necessity is that the 7 adverse effects negotiations and agreement and the 8 amount of compensation between -- to NCN from the 9 project will be essentially the same regardless of 10 whether the project was co-owned or not. And so the 11 ownership aspect is independent of that. 12 And so whether or not NCN is a co-owner or not 13 or whether it's a full 33 per cent or not will not 14 affect the adverse effects compensations amount 15 because we view the -- I'm speaking on behalf of 16 Manitoba Hydro right now -- we view -- this is 17 supplementing the compensation that we would have to 18 pay. Supplementing meaning it's separate from. 19 MR. ABRA: Is there a compensation component 20 though or contemplated compensation component other 21 than the adverse effects in the event that NCN does 22 not proceed with its part of the partnership? 23 MR. WOJCZYNSKI: We have not contemplated any 24 such thing, no. 25 MR. ABRA: There hasn't been any discussion in 389 1 that regard? 2 MR. WOJCZYNSKI: No. 3 THE CHAIRMAN: Let me ask a question in regard 4 to Mr. Thomas. If NCN is not a partner to this, 5 strictly as an example for instance, is not a partner 6 in the project, would not the membership of NCN, for 7 instance, be negotiating some compensation maybe for 8 the access road that's put in here versus which could 9 be considered with some adverse effects. May be 10 positive effects too but there may be adverse 11 effects. 12 Now, if NCN is a partner, because if they are 13 a partner, it's an essential part of the project. 14 They are a third owner of this access road, would 15 that not bring about differences in the compensation 16 that the NCN membership would expect or would that 17 not affect the compensation? 18 MR. THOMAS: The total project is what is 19 being considered in our discussions and negotiations 20 when we are talking about the partnering with 21 Manitoba Hydro. The specific parts of it, I suppose 22 there's many ways of looking at it. In terms of 23 trying to assess whether or not it can be considered 24 compensation either within the scope of what we're 25 talking about or without. It's a difficult issue to 390 1 address. 2 We have not approached things from the 3 perspective that we would not be able to do what we 4 are desiring to do which is to partner in this 5 particular project. 6 I believe that one of the reasons that 7 Manitoba Hydro has approached NCN to partner in this 8 situation is not only the fact that the project is 9 being proposed to occur within our own traditional 10 territory, but we do have a reputation as a First 11 Nation community that knows how to handle its 12 financial situations quite well. 13 We do have occasional blips that occur but we 14 have solid financial plans to handle things quite 15 well. And for that reason, in addition to other 16 things that we've done, i.e. changed the way our 17 people are elected into office, the terms of office 18 from a two-year term to a four-year term, all of that 19 produces a stable environment. And we're seen as a 20 community that is good to do business with. And for 21 that reason, we explore the business potential with 22 others and others are receptive to talking to us 23 about those kind of issues. 24 So we've focused on being able to do the 25 partnership. And we have no doubt that we will have 391 1 the ability to come up with the required amount of 2 money to satisfy the equity. So when we look at it 3 from that perspective, compensation is not much of an 4 issue in that regard. 5 We've had, as we indicated previously, used 6 traditional knowledge and western scientific 7 knowledge in conjunction with each other to determine 8 how the access road is going to go into the project 9 area. And where it was advisable as a result of the 10 input of TK, traditional knowledge and western 11 scientific knowledge, accommodations were made to 12 either mitigate or avoid impacting adversely the area 13 of concern sufficient to not have to talk about 14 compensation in that regard. 15 That's about the best answer I can come up 16 with at this point. 17 THE CHAIRMAN: Well, the example that I chose 18 was not a good one. 19 MR. THOMAS: Perhaps not. 20 MR. ADAMS: Mr. Chairman, it may be useful to 21 try to clarify Manitoba Hydro's perspective. 22 We have taken the position that we will not 23 advance Wuskwatim for export purposes unless we have 24 the consent of NCN. And part of that consent 25 obviously is going to be a compensation agreement 392 1 that satisfies both people, both parties. And we do 2 have in place an agreement on how to get agreement on 3 compensation in the event that we can't reach it by 4 ourselves. 5 In the interim, we are fully confident that 6 Mr. Thomas and his colleagues are capable of raising 7 the funds necessary to buy a significant portion of 8 the equity. We, too, are interested in their ability 9 to do it. I've done a limited amount of discussion 10 with him. And as Mr. Thomas says, at this point, all 11 our efforts are primarily concentrated on making the 12 partnership work as opposed to what we might do if it 13 doesn't work. 14 We appreciate that there is always a concern 15 what happens when the world doesn't unfold as you 16 expect. 17 THE CHAIRMAN: Thank you. And on that note of 18 understanding, maybe we should break for lunch. 19 20 (PROCEEDINGS RECESSED AT 12:00 AND 21 RECONVENED AT 12:50 P.M.) 22 23 THE CHAIRMAN: Folks, in about 30 24 seconds we will be ready to begin. I know we will 25 be missing a few players, but they will just have 393 1 to catch up. So, I will give you a chance to sit 2 down and get ready. 3 4 (OFF THE RECORD DISCUSSION) 5 6 THE CHAIRMAN: All right, we are ready 7 to go. To continue with the process interrupted 8 just before lunch, I will pass it on to Mr. Abra. 9 MR. ABRA: Thank you, Mr. Chairman. 10 I am finished my questions with 11 respect to the issue of the summary of 12 understanding. I don't know whether the members 13 of the panel have any more? If you don't, then I 14 intend to move on to the issue of capital costs 15 and production costs. Is that satisfactory? 16 THE CHAIRMAN: Yes. 17 MR. ABRA: Thank you. I would like to 18 take -- members of NCN/Hydro, I have left with 19 you -- I believe I left five copies of a booklet 20 which just contains in it -- it is referred to as 21 documents CEC cross-examination MH/NCN. I would 22 expect that most of this will be Ms. Wray's area 23 of expertise, but I may be wrong. 24 I want to go through some of the 25 documents that are contained in it. In 394 1 particular, there is -- members of the Commission, 2 I have also left copies for you and there were 3 some that were left, copies that were also made 4 available for others here, if you received them. 5 But tab number 1 contains 2 documents, table A.11 6 and A.12. 7 MR. WILLIAMS: If I might, some of the 8 parties don't have them. So, if Mr. Abra can hold 9 on for a couple of seconds, we can grab copies. I 10 don't think Hydro's counsel have any either, so we 11 will have a race if there is only one copy left. 12 MR. ABRA: There was about 20 or 25 13 extra copies. I left them there. 14 MR. MAYER: We can probably share 15 around here, guys. Frankly, I don't understand 16 them anyway. 17 MR. ABRA: That's why I am going to be 18 asking somebody to explain. 19 MR. GREWAR: That's all the copies we 20 have. There were 35 of them. 21 MS. WRAY: Mr. Chair? 22 THE CHAIRMAN: Yes, Ms. Wray. 23 MS. WRAY: Just to fill in the gap 24 while these things are being distributed, perhaps 25 I could provide the responses to a question 395 1 Mr. Abra asked this morning regarding year-end 2 balances at March 3lst, 2003. I believe he asked 3 about the year-end balances for planning studies, 4 for Wuskwatim, Gull and Conawapa, and also for the 5 year-end balance for D.S.M. We have been able to 6 find those numbers now. 7 For Wuskwatim, the year-end balance 8 for amortized planning studies is $54.8 million; 9 for Gull, it is $78.3 million and those two 10 amounts are included in construction and progress. 11 Conawapa $16.5 million and D.S.M., otherwise known 12 as PowerSmart, $50 million. Those two are in 13 deferred assets. 14 MR. ABRA: Ms. McClellan has just 15 asked me to follow up -- the reference to 16 Conawapa, is it under deferred assets or planning 17 studies? 18 MS. WRAY: Well, planning studies are 19 in deferred assets. You referred me this morning 20 to an aggregate amount I believe of $35 million in 21 planning studies. This is part of a sub-total 22 that adds up to -- that adds up to total deferred 23 assets. So, that 16.5 is in deferred assets. But 24 all the amounts that I have just given you are 25 what we would characterize as planning studies. 396 1 They are monies being expended in advance of a 2 commitment being made. 3 MR. ABRA: Do you have the booklet in 4 front of you, Ms. Wray? 5 MS. WRAY: Yes. 6 MR. ABRA: Firstly, tab number 1 are 7 the two pages that were from the original filing 8 under NFAAT and they were attachment 6. They show 9 the Wuskwatim project commencing at 2009 and going 10 through to 2020. Of course, the project was moved 11 back one year to 2010. 12 And tab number 2 shows the revised 13 projections for capital costs with it being moved 14 back one year. That was under -- it originally 15 came forward through information request 16 CEC/MH/NCN 1 - NFAAT - 36b, as you will see. 17 Then there were further information 18 requests that were made by CAC, in particular for 19 the record, it was CAC/MSOS/MH/NCN 2 - NFAAT - 9a. 20 And tab 4 was part of the same -- it was part of 21 the same information request, but it is 72b. 22 I would like you to run through for us 23 how -- the total costs in each of them are 24 different and we are wondering the reason for 25 that? What are the differences between the total 397 1 costs indicated in each of the filings under tabs 2 1 through 4? 3 MS. WRAY: I will probably pass this 4 over to Mr. Wojczynski, because the dollars in 5 question are what we call base dollars. They 6 haven't been escalated by interest and escalation 7 to arrive that those we use for the financial 8 statements. 9 MR. ABRA: Okay. In particular, 10 Mr. Wojczynski, you will notice the total 11 unadjusted estimate in the original filing for the 12 generation station was 568 million -- no, 13 568.34 -- Transmission lines was 57.56, 14 Transmission station 51.71, for a total of 677.81. 15 Then there was the total sunk cost. 16 Now, you go to the -- that was then 17 changed in tab 2 to a greater amount. And then 18 tabs 3 and 4 are significantly more. We are 19 wondering the reason for that, sir, as far as your 20 capital cost estimates are concerned? 21 MR. WOJCZYNSKI: Okay, I can see -- if 22 I understand your question then, it is under tab 23 1, you have got the table A.11, and we have the 24 total unadjusted estimate of 677.81 million? 25 MR. ABRA: That's right. 398 1 MR. WOJCZYNSKI: You're asking us to 2 compare that to the next number was -- I am sorry, 3 could you repeat that? 4 MR. ABRA: That was for the year 2009. 5 MR. WOJCZYNSKI: Yes. 6 MR. ABRA: It was adjusted under tab 2 7 for a starting date of 2010? 8 MR. WOJCZYNSKI: Okay, yes. 9 MR. ABRA: You will note at that point 10 that the total unadjusted estimate was 694 11 million? 12 MR. WOJCZYNSKI: Yes. 13 MR. ABRA: It has gone up some 14 $20 million based upon one year's delay. 15 MR. WOJCZYNSKI: Yes, that's correct. 16 MR. ABRA: Then you go to tab number 17 3, which was a revised estimate, where you go to 18 710 million. And, in particular, there has been 19 an increase in the sunk cost of $17 million. 20 Now, firstly, for the information of 21 the panel members, you might tell them what the 22 unadjusted estimates mean and then what the sunk 23 costs are to make up the total adjusted estimate, 24 both with respect to the Generation station and 25 the Transmission lines, and in particular, what we 399 1 are interested in is the increased cost of 2 $17 million shown for the years 2004/2005 under 3 tab number 3, with respect to the sunk cost for 4 the Generating station. 5 Do you see what I am talking about, 6 sir? 7 MR. WOJCZYNSKI: Generally, I do, and 8 I will try and do that step by step. I hope you 9 will bear with me because there are a lot of steps 10 in here and I am having trouble keeping them 11 clear. 12 MR. ABRA: I am not trying to go too 13 fast. If I am, slow down to your own pace. 14 MR. WOJCZYNSKI: I appreciate that. 15 MR. ABRA: In particular what we are 16 interested in is that sunk cost of 17 million 17 under tab 3, which I have actually underlined, as 18 you will see. 19 MR. WOJCZYNSKI: He has underlined it? 20 Tab 3, okay. That's the 17 million, 2004/05 under 21 tab 3? 22 MR. ABRA: That's right. What is the 23 reason to begin with for the increase on the 24 unadjusted estimate from table A.11, as it was in 25 the original filing and then moving it back one 400 1 year under tab number 2 to 2010 -- some 2 $20 million difference? 3 MR. WOJCZYNSKI: If we can start with 4 that -- that is what you're asking me to do. 5 Maybe I can just use the tabs. That might be the 6 easiest reference. From tab 1 to tab 2, the 7 Generating station costs went up. The 8 Transmission line and Transmission station cost 9 did not go up. It was just the Generation 10 component and that was in the order of 11 $17 million. 12 MR. ABRA: Can you tell us why? 13 MR. WOJCZYNSKI: The reason for that 14 is that we had one year additional in the 15 schedule, going from 9 to 10, and there were a 16 number of components to that. Because we had 17 already started the project, a number of 18 activities that we started would have to be 19 carried on. 20 There is an interrogatory on this as 21 well and we can go -- I can pull it out if you 22 like. In general terms, when we added -- had to 23 add a year to the schedule, the costs that went up 24 were that, first of all, on the process -- the 25 regulatory process and the consultation process, 401 1 as we had, they were going to be taking -- be more 2 extensive and more prolonged and involved more 3 activity than we had originally anticipated. 4 There were higher costs in both of those. 5 The third area is that there were 6 external costs for those, as well as in the -- 7 there were internal costs for those. The third 8 area is that we had -- we were already undertaking 9 the engineering and certain of the engineering and 10 the environmental outside consultants that we were 11 working with were going to have to be involved 12 longer, and we are going to be less efficient in 13 being able to do that work because of having to 14 carry on over the longer schedule. 15 So, it is a combination of those three 16 aspects happening, due to the delay itself and not 17 due to any other cost estimate changes. It is not 18 that the cost of the project per se changed 19 because of design parameters or anything else. It 20 was just the process to be able to get to the 21 point of starting construction, it was going to be 22 more prolonged for those three reasons and was 23 going to cost more. 24 MR. ABRA: Are those sunk costs, sir, 25 the changes -- in other words, money that has been 402 1 expended? What are sunk costs, just for the 2 record? 3 MR. WOJCZYNSKI: For the record, a 4 sunk cost is when you are doing an economic 5 evaluation and you look at the decision you are 6 making and you say: What has been spent or will 7 have been spent regardless of what I do with this 8 decision. 9 So, when you make the decision, you 10 don't include those in your decision-making 11 because it doesn't affect those. 12 MR. ABRA: Because you have already 13 sunk them? 14 MR. WOJCZYNSKI: You have already sunk 15 them and "sunk" means you have already spent them 16 or you have already committed to spending them. 17 MR. ABRA: So, the analysis -- any 18 analysis that you do then, whether to go forward 19 with Wuskwatim, does not include sunk costs? That 20 is money that is going to be spent in any event? 21 MR. WOJCZYNSKI: That's correct. 22 MR. ABRA: Thank you. Going then to 23 tab 3 where we have got the $17 million, what's 24 the reason for that? 25 MR. WOJCZYNSKI: Okay. Tab 3 we have 403 1 the generation component -- first of all, if we 2 could maybe just look at the unadjusted one, the 3 total cost went up, compared to tab 2, from 585 4 million to 587 million and that was due to a 5 change in the construction power estimate. 6 So, the 587 million that we included 7 on the unadjusted had the increased cost due to 8 the one-year delay, plus about another 2 million, 9 2.9 million due to a higher construction power 10 estimate. So, the unadjusted estimate is for the 11 one-year delay, plus a little bit higher 12 construction power. 13 The second thing, in the sunk costs, 14 we have now increased the sunk cost component 15 because in the first analysis, that's under 16 tabs -- the first 2 tabs, we were looking at a 17 commitment to date or decision date last year of 18 the project moving forward. Effectively, we were 19 looking at a decision October/November of whether 20 we would move the project forward or not. We were 21 using a sunk cost date of about October 2003. 22 Now that we have the new schedule and 23 here we are in March 2004, we don't anticipate 24 having a license for the project until some time 25 at the end of the summer, say, in that order. 404 1 So, we would not be making a decision 2 to construct Wuskwatim, or not, until early fall, 3 say. So, now the sunk cost day will be fall of 4 2004 instead of fall of 2003. So, now the sunk 5 cost date -- sunk cost component has gone up 6 because the commitment date itself has been pushed 7 back. 8 MR. MAYER: That $2.2 million on your 9 construction power cost, is that the result of 10 changing the route of the Transmission line to 11 hold it inside the resource area for a longer 12 period of time than your original route called 13 for? 14 MR. MAZUR: The preferred route that 15 was eventually selected was 3 kilometers longer, 16 which would amount to about $600,000 in gross 17 cost. 18 MR. MAYER: So that would be a piece 19 of 2.2 million then? 20 MR. MAZUR: Yes. 21 THE CHAIRMAN: That was Mr. Mazur? 22 MR. MAZUR: Yes. 23 MR. ABRA: Now, the 17 million that is 24 shown as a sunk cost under CAC/MSOS/MH/NCN 29a, 25 shortly after the one-year delay was announced, in 405 1 a newsletter you published a difference of 16.74 2 million. Does that reflect the same delay cost, 3 in essence? As of November, was it now 4 17 million? 5 MR. WOJCZYNSKI: I am sorry, you're 6 referring to a newsletter? 7 MR. ABRA: Yes. The original estimate 8 we received, or heard, was that the delay of one 9 year was going to cost 16 million -- 16.74 10 million. Now, according to this, it is 17.03 11 million. Is that the same -- 12 MR. WOJCZYNSKI: Generally -- I mean, 13 there are some small differences in the precise 14 number, and I am not quite sure why that is 15 offhand, but generally speaking, it is the same 16 money we are talking about. 17 MR. ABRA: So, assuming for a moment 18 that each year there is a delay, are you looking 19 at approximately $17 million of increased sunk 20 costs? 21 MR. WOJCZYNSKI: It depends what the 22 reason for the delay is. If we are talking 23 about -- a hypothetical situation where the same 24 process we are in, this is kind of a regulatory 25 process we are in, and the consultation is going 406 1 on and the full involvement of a range of 2 participants and our consultants and NCN/Manitoba 3 Hydro, with the level of activity we are engaged 4 in, the one-year delay for an extension of such a 5 process may not be fully another 16 million, but 6 there would be a significant increase in the cost. 7 I expect that the engineering component wouldn't 8 probably increase as much as it did last time if 9 we had such another extension, but we haven't 10 assessed that. We don't have that information. 11 That would be a preliminary thought on that. 12 I am sorry, I realize I gave you one 13 scenario and I meant to give you a second 14 scenario. 15 If we had a one-year delay and I said 16 if we maintained the level of activity we are 17 engaged in right now, it would be a cost which 18 would be similar to the 16 or probably a bit less. 19 If on the other hand, we received a 20 license and the activities were engaged and were 21 more or less completed and received a license, but 22 decided to delay the in-service date for a year 23 for whatever reason because it proved to be 24 attractive, but didn't have to engage in all the 25 activities that we have been, then there would not 407 1 be such an increase in the sunk cost in that case. 2 That's why I said it depends on what the 3 circumstances are. 4 MR. ABRA: I see. The last estimate 5 under the CAC/MSOS information request, showing an 6 unadjusted estimate of 17 -- excuse me, of $710 7 million, $710.12 million, is that still accurate 8 today as far as you're aware? 9 MR. WOJCZYNSKI: That's our best 10 estimate that we have today. We are continually 11 updating our estimates and we had between last 12 year and this year, we had got the transmission 13 estimate more or less up to the same level as the 14 generation estimate. That increased it slightly. 15 Now, those are our current estimates 16 and over the course of time, we will, particularly 17 once we got our license in place and know all our 18 terms and conditions better, we will re-estimate 19 at that time. This is currently our best 20 estimate. 21 MR. ABRA: I see. It is the same for 22 the sunk costs as well? 23 MR. WOJCZYNSKI: Yes, because that 24 assumed roughly the end of August, September, 25 October, where we would be moving into the 408 1 construction phase and we still believe that to be 2 the case. That is still our best cost on the 3 sunk. 4 With one small caveat there, that now 5 that we are further on, we can refine the estimate 6 within another million or two or a few million 7 because this was an estimate moving forward and 8 now we are a good part of the way forward. But 9 the change in the estimate for these few months 10 will not be major compared to the overall 11 estimate. 12 MR. ABRA: At the time of the original 13 filing in April of 2003, you had I think -- I 14 think you said yesterday -- or the filing said you 15 had about 90 percent confidence in the numbers as 16 you had them. Does this change -- the significant 17 changes that there has been, does that change your 18 degree of confidence at all? 19 MR. WOJCZYNSKI: No, it doesn't. I 20 would say we still had roughly that same level of 21 confidence. Whenever one applies a confidence 22 interval or confidence estimate to capital cost 23 for a project, it always excludes "force majeure," 24 or a major scope change. 25 So, a one-year delay due to the kind 409 1 of situations we had would not be something one 2 would normally put into a confidence estimate. So 3 we are more or less at the same place we were one 4 year ago. If anything, we might have, on the 5 transmission side, a little more confidence 6 because more work was done in the intervening 7 time. Generally speaking, we have the same 8 confidence we do now as we did a year ago. 9 MR. ABRA: So, if you redid the study 10 today, the range wouldn't change, the range with 11 respect to your degree of confidence? 12 MR. WOJCZYNSKI: If there was a 13 change, it would be an insignificant change. So, 14 for all intents and purposes, it would not change. 15 MR. ABRA: Okay. Sir, when you do 16 your capital costs and your estimates, you take 17 into consideration, I believe, the service life 18 for the Generation station, the transmission lines 19 and the Transmission station? 20 MR. WOJCZYNSKI: Yes. 21 MR. ABRA: How do you determine those 22 service lives and when were they last reviewed? 23 MR. WOJCZYNSKI: I will give bit of an 24 answer, but it may be that we want to have an 25 expanded answer. 410 1 We, on a fairly regular basis -- and 2 the finance people, including Ms. Lynn Wray, are 3 familiar with this -- they regularly, with some 4 frequency, review all our physical assets and 5 determine what their lives have been, and then we 6 use that in the financial studies and the economic 7 studies. 8 So, I am not sure when the last time 9 this depreciation study was done, but it is done 10 every number of years. There is a lot of 11 variation from one project to the other, but there 12 is a general level of confidence when you look at 13 categories. If anything, I think we may be going 14 to finding that the service lives might be 15 slightly longer than shorter. I am not sure if 16 there is anything that could be added to that. 17 MS. WRAY: To my recollection, there 18 was a depreciation study done, I think two or 19 three years ago that would have looked at all of 20 the corporation's depreciation rates for different 21 components. And so what we are using here by 22 averages would have taken that update into 23 account. I don't believe, in fact, they have 24 changed in terms of the life of generating 25 stations or major transmission. 411 1 MR. ABRA: Well, can you find out for 2 us when they were last done, Ms. Wray? 3 MS. WRAY: Certainly. 4 MR. ABRA: Assuming that your 5 recollection of it being some two or three years 6 ago is correct, you're saying that you don't think 7 that the service lives of the three components in 8 this particular project would have changed 9 significantly, as far as your estimates are 10 concerned? 11 MS. WRAY: Not to my recollection. 12 MR. ABRA: Okay. 13 MS. WRAY: There may have been changes 14 in individual small components, but materially 15 speaking, I think what you are using here would be 16 in line with that latest study. 17 MR. ABRA: The last question in the 18 original filing, attachment number 6, which is 19 again under tab 1, but it is the second page and 20 then going to the revised numbers contained under 21 tab 3 of CAC/MSOS 9a, the total unadjusted 22 estimate from the original filing in April of 2003 23 was 756.43, and it is now up to 780.08. Is there 24 any reason you can point to for that or have you 25 answered that already in what you have told me? 412 1 MR. WOJCZYNSKI: Sorry, Mr. Abra, you 2 mentioned 756 million number? I am having trouble 3 finding it. 4 MR. ABRA: It is page 2 under tab 1. 5 It was the original filing in April of 2003. I am 6 sorry if I didn't make that clear. Are you with 7 me? 8 MR. WOJCZYNSKI: This is for 2020. 9 Okay. 10 MR. ABRA: Do you follow what I am 11 saying? 12 MR. WOJCZYNSKI: Yes, I found it. I 13 was still looking at the 2010 service dates. It 14 is the 2020, sorry. 15 MR. ABRA: That was based upon an 16 estimate through to 2020 and similarly, tab number 17 3 -- excuse me. Tab number 4 through to -- I am 18 sorry. Tab number 3, I am sorry, for the year -- 19 it is updated to 2019. I am sorry, the second 20 page under tab 3 -- 21 MR. WOJCZYNSKI: Yes. 22 MR. ABRA: -- it is updated to 780.08. 23 What is the difference or the reason for that 24 almost $25 million difference? 25 MR. WOJCZYNSKI: The majority of the 413 1 reason is for the issue we just talked about. 2 Under tab 1, for the 2020 in service date, the 3 assumption there was that we would be one year ago 4 engaged in the engineering and the environmental 5 and regulatory review and that we would stop our 6 activities essentially in the late fall, early 7 winter, and then we would pick it up again at a 8 later date. That's why you see it drop from 23.37 9 down to 0.93. 10 Then, in this updated one under tab 3, 11 the assumption was, well, we have already been 12 spending money, we are engaged in the process, the 13 process is going to be a year longer. So, the 14 point at which we would stop activities on the 15 project and revert to a later in-service date was 16 one year longer. So that one-year additional work 17 is now included in that 2019 cost. 18 MR. ABRA: I would like now to go to 19 tab number 5, please? I don't propose to go 20 through every number in every column, as much as I 21 might find it enlightening. 22 MR. WOJCZYNSKI: You and me both. 23 MR. ABRA: Sir, there is table A.13 24 and A.14, A.15 and A.16. 25 Now, A.13 and A.14, firstly, refer to 414 1 Wuskwatim in service 2020. The second column is 2 Wuskwatim in service 2009. But, if you go to 3 tables A.15 and A.16, you will see rather that 4 referring to Wuskwatim in service at 2020, you 5 refer to what is called a neutral-base case. 6 MR. WOJCZYNSKI: Yes. 7 MR. ABRA: I wonder if you could 8 explain to me, please, the difference between 9 those two documents? In other words, what does 10 the term neutral-base case mean, as opposed to 11 Wuskwatim in service at 2020? 12 MR. WOJCZYNSKI: I would be glad to do 13 that. You recall yesterday in my rather lengthy 14 presentation that there was the two kinds of 15 economic analysis we do. One is what we call the 16 advancement and the other is what we called the 17 long-term. 18 The advancement analysis is what is 19 represented in table A.13 and A.14. We start with 20 the assumption that Wuskwatim will be in service 21 in 2020 to meet domestic load. Then we advance it 22 to 2009. Then we do a comparison of those two 23 sequences. That is what is represented tables 24 A.13 and A.14. 25 Tables A.15 and A.16 represent the 415 1 other analysis that I was referring to and that is 2 called long-term economics. 3 In that situation, we start not with 4 the premises that Wuskwatim is going to be in 5 service to meet domestic load in 2020. Instead we 6 start with the premise that Wuskwatim will never 7 be built and that what we found is other resources 8 which would meet the domestic load requirements, 9 and the case we chose, there would be simple cycle 10 combustion turbines would be put in whenever the 11 dependable energy requirement showed a need for 12 more resources. 13 Now, we take the new base case and we 14 compare that to a case where we put Wuskwatim in 15 2009. That is what is represented by tables 15 16 and 16. 17 There are two different analysis. 18 What we are trying to make sure is we have an 19 analysis -- by doing the second kind of analysis, 20 that we have an analysis that demonstrates that is 21 not only economic to advance Wuskwatim from 20 to 22 2009, it is economic to put Wuskwatim in, period. 23 Never mind advancement, just period; forever. 24 MR. ABRA: So, for the purposes of the 25 analysis of Wuskwatim, which of the two 416 1 methodologies should we be using? 2 MR. WOJCZYNSKI: Both. 3 MR. ABRA: Okay. 4 MR. WOJCZYNSKI: Do you want me to 5 expand on that? 6 MR. ABRA: Yes? 7 MR. WOJCZYNSKI: No one knows exactly 8 what the future is going to unfold. That is 9 clear. What we have said is our current, best 10 information is that if we don't advance generation 11 for export, we need something around 2020. Our 12 best information right now is that it would be 13 Wuskwatim. So, that's the advancement scenario. 14 But no one knows for sure whether that is going to 15 be the case. So, we said what if it wasn't 16 Wuskwatim and we will go to the extreme if 17 Wuskwatim is never built and we looked at it that 18 way. 19 So, the reason we would say use both 20 is in good part to deal with the uncertainty, that 21 you don't know exactly what the future is going to 22 be like. 23 The second reason we need both 24 approaches is, from the environmental licensing 25 point of view, one could take the perspective that 417 1 it is not a given that we will build Wuskwatim in 2 2020. You have to justify doing it in the first 3 place from an environmental licensing point of 4 view. So, the second analysis helps to justify 5 that building Wuskwatim compared to never building 6 Wuskwatim is a reasonable thing to do. 7 MR. ABRA: Okay. I can ask you this 8 now, in particular, what do you mean by the fixed 9 production costs and the variable production 10 costs? But, let me ask you this before you go 11 through that. For the purposes of our analysis, 12 is it satisfactory for us to use tables A.15 and 13 A.16 as far as the production -- the fixed and 14 variable production costs are concerned? 15 MR. WOJCZYNSKI: Yes. 16 MR. ABRA: Okay. What is included in 17 the fixed production costs and the variable 18 production costs, sir? 19 MR. WOJCZYNSKI: As the note at the 20 bottom tries to indicate, the fixed production 21 costs include fixed O&M costs and thermal demand 22 charges. Perhaps I can explain a little bit what 23 we mean by that. Starting with our hydraulic 24 system, we have got around 5000 megawatts of 25 assets. Regardless of whether we have more water, 418 1 or less water, how much energy we produce from it, 2 the O&M is more or less constant, so it doesn't 3 vary by flood and drought. We consider that to be 4 a fixed component. 5 The thermal plants is the same sort of 6 story. There is a certain amount of maintenance 7 that you have to do on a regular, ongoing basis. 8 Thermal demand charges, what we are 9 referring to there is there are certain costs we 10 have to incur. If we have thermal resources, 11 whether coal or gas, there are certain costs that 12 we are exposed to just to keep the option of 13 running them. For instance, with gas we might be 14 paying a bit of a demand charge or paying for an 15 assurance that we will get some gas. We have 16 certain arrangements under coal. There is those 17 kind of costs. Pipeline charges might be part of 18 that, for instance. 19 MR. ABRA: Those are the variable 20 costs? 21 MR. WOJCZYNSKI: Sorry, those are the 22 fixed production costs. 23 MR. ABRA: Okay. 24 MR. WOJCZYNSKI: For instance, the 25 pipeline one, we want to make sure that we will be 419 1 able to -- if all of a sudden we need 2 300 megawatts of gas CT's to be able to run our 3 Selkirk station, even though normally we wouldn't 4 run it very much at all, we reserve space so that 5 if we need it on short notice we can. That's why 6 we refer to it as fixed. 7 MR. ABRA: All right. The variable 8 production costs, again, you have a bit of an 9 explanation in there referring to, as you say, 10 water power supply, generation such as water 11 rental, thermal fuel, variable O&M and import 12 costs is the description you have given in the 13 documents. 14 Now, in particular, sir, how do import 15 costs come about? Why are they referred to as 16 variable costs? 17 MR. WOJCZYNSKI: Because, if you go 18 back to the explanation Mr. Cormie gave us 19 yesterday, when we are in a -- let's say we are in 20 a high-flow situation, we have lots of water in 21 our system, we are into a lot of exporting and we 22 would minimize our operation of thermal generation 23 in Manitoba, particularly at the expense of 24 natural gas and we would not be undertaking 25 significant imports. 420 1 However, if we go into, let's say, a 2 severe drought where Hydro's dependable resources 3 are not sufficient, then we use up all our low 4 cost thermal, then we use what low cost imports we 5 can find, and then we continue incurring more and 6 more costly thermal imports. 7 But, fundamentally, it is because our 8 hydraulic system cannot provide enough energy in a 9 drought and we are importing to meet our own load 10 and also to maintain the level of water in the 11 reservoirs in case the drought extends into the 12 future. 13 I should explain that this set of 14 tables is a summary of the average of what happens 15 over all 86 flow cases. We don't know in any 16 particular year if we will have a flood or drought 17 or something in-between. 18 So, when we do our planning into the 19 future, for each and every load year -- let's say 20 year 2011, we don't know what the water conditions 21 are going to be in that year. So, in our 22 long-term simulations we say, what if the low flow 23 happens? How do we operate our system? What will 24 the cost be? What if the 85 flow happens in the 25 year? We calculate the cost for each and every 421 1 one of those conditions and then we average them 2 out and that's what we put down here. 3 So, the import cost is in here because 4 in the lower flow years, we had imports and we 5 average it out with the higher flow years and this 6 is just an average of all those flow years. 7 MR. ABRA: Why do you include import 8 costs in the cost of the generating station 9 itself? 10 MR. WOJCZYNSKI: I am sorry, could you 11 repeat that? 12 MR. ABRA: Why do you attach them to 13 the cost of a generating station, the import cost? 14 MR. WOJCZYNSKI: We don't attach it to 15 the cost of a generating station. What these 16 sheets are -- do you remember earlier somebody was 17 asking us, I believe it might have been yourself, 18 Mr. Abra, about the results from the SPLASH run, 19 the simulation. What these first -- what these 20 columns here are, is the output of our simulation 21 model when we simulate the operation of the entire 22 system. 23 So, as I said earlier, we first look 24 at the base case. We say how does the whole 25 system operate with all the existing generation, 422 1 all the loads, all the exports, everything else? 2 And then we say, let's re-simulate that with the 3 new resource addition. What you're looking at 4 here is not the cost for a particular generating 5 station, it is the cost of operating the entire 6 system. 7 MR. ABRA: Then you attach a certain 8 component of the import cost to each of the 9 generating stations; is that how it works? 10 MR. WOJCZYNSKI: No, sir, we don't. 11 It is part of the cost of the entire system 12 operation. 13 Let me give you an example that might 14 be helpful here; a hypothetical example. Let's 15 say the import cost on the average, without a new 16 resource, was $20 million. And then we 17 re-simulate the whole operation when adding the 18 new resource and it drops to $18 million. That 19 $2 million drop would have been a change in how 20 the entire system operates, but it would have been 21 caused by that project coming in. It is not 22 particularly attached to that project, it is just 23 how did that project cause the system operation to 24 change? 25 MR. ABRA: Okay. What is firming and 423 1 what is shaping? 2 MR. WOJCZYNSKI: Those are two terms 3 that we have utilized in a general sense to help 4 explain what we do with various resources like 5 hydro or wind, or other resources. 6 In basic terms, with firming, and 7 there is different kinds of firming, but if we 8 have a resource that we are counting on utilizing 9 to, for example, sell to the export market on an 10 firm contract. 11 When you have a firm contract, you 12 have an obligation to supply that, whether the 13 wind is blowing or not, or whether you have got 14 lots of water that year or not. The firming is 15 the cost to make sure that you can supply the 16 export demand, or your domestic demand, when the 17 resource that you are analyzing may not be 18 available. So, that's what we call the firming 19 component. 20 The shaping component is a separate 21 issue. A good example of what we mean by that is, 22 the on peak is more valuable than the off peak for 23 exports. So, generally, what we want to do is 24 move energy from the off peak to the on peak, and 25 that gives it greater value; the energy. 424 1 So, if we add an additional resource 2 to the system, whether it is Wuskwatim or wind, 3 when we add that resource to the system, and that 4 resource produces in the off peak -- this is even 5 more important for wind than it is for 6 Wuskwatim -- we take the power from let's say 7 wind, and we reduce the output of our other 8 generating stations on the system, let's say at 9 the Lower Nelson, and then that water is kept in 10 storage overnight. The next day, for instance, it 11 could be used in the on peak to help meet the more 12 valuable exports at that time. 13 So, that's what we call shaping; 14 moving the energy around to a more valuable time. 15 MR. ABRA: It is in essence a saving 16 of the energy, is it not, in off hours in order to 17 meet a demand in peak hours? 18 MR. WOJCZYNSKI: For the shaping, that 19 would be the main part of the shaping. There are 20 other kinds of shaping where you move it between 21 weeks or seasons, but the on/off peak is the main 22 one. 23 MR. ABRA: Now, you do often -- or 24 maybe "often" is too strong a word, I don't know. 25 Correct me if I am wrong, but you do often import 425 1 power in order to meet your domestic needs when 2 you are shaping water or wind for the purpose of 3 export during peak hours; do you not? 4 MR. WOJCZYNSKI: When we are importing 5 in those kind of situations, I wouldn't 6 necessarily say we are importing for our domestic 7 needs and then shaping wind for the export. 8 Actually, quite often we will import 9 with express purpose of importing a low cost -- 10 importing low cost energy so then we can turn 11 around and export it the next day at a higher 12 value and make money on that transaction. That's 13 a fairly regular transaction that we undertake. 14 MR. ABRA: You have explained it 15 better than my question was, but in essence, 16 that's what I am asking. You do input power in 17 off hours in order to save your water or your 18 wind, through shaping, for the purposes of export 19 at high peak demand prices? 20 MR. WOJCZYNSKI: Yes. 21 MR. ABRA: Okay. Now, as far as your 22 import costs are concerned in the tables that we 23 have looked at, as far as fixed costs and variable 24 costs and so forth are concerned, do you take 25 firming and shaping into consideration at all in 426 1 determining those import costs? 2 MR. WOJCZYNSKI: This is an 3 explanation that has been difficult to deal with 4 throughout the interrogatory process. We came up 5 with the terms firming and shaping back in July 6 and August, during the workshops, to help explain 7 to people the differences between the system 8 operation or the different resources. 9 The way we determine the firming and 10 shaping cost is by taking these kind of system 11 operation simulations and comparing them one to 12 another, one simulation against another. We don't 13 actually develop a firming or shaping cost for 14 something and then put it into our analysis. It 15 is the other way around. We do our analysis using 16 this detailed, full scale system simulation. And 17 then later on when we are explaining to people why 18 does the system operate the way it does, why do we 19 have those costs, we come up with these 20 explanations of the firming and the shaping to 21 explain why the system is doing what it is doing. 22 Which comes first? The system operation comes 23 first, and then we come up with the explanation of 24 firming and shaping. 25 So, we don't assign a firming or 427 1 shaping cost to the import component in here. The 2 import component is what we pay on the 3 interprovincial markets to buy that energy. There 4 is no firming or shaping component built into that 5 column. 6 MR. ABRA: There isn't? 7 MR. WOJCZYNSKI: Not into that column, 8 no. The firming and shaping is a result of the 9 entire system operation, it is not in any 10 particular column. 11 MR. ABRA: So under the variable cost 12 columns that are here, you're saying that shaping 13 and firming are not included, the costs of them? 14 MR. WOJCZYNSKI: The firming and 15 shaping -- the effects of us firming and shaping 16 are included in these costs, but we have not 17 calculated a firming or shaping cost and put it 18 in, but the impacts of firming and shaping are 19 included. 20 MR. ABRA: There is an incremental 21 cost, but you can't identify how much it is; is 22 that what you're saying? 23 MR. WOJCZYNSKI: Yes, it is not an 24 explicit component. That's right. 25 MR. ABRA: Okay. The transmission 428 1 tariff costs are not included in either the fixed 2 production costs or the variable production 3 costs -- or are they? 4 MR. WOJCZYNSKI: Whether we look at 5 our long-term -- particularly for our long-term, 6 but also for our short-term opportunity. 7 Generally, the costs on the other side 8 of the transaction -- let's say the United 9 States -- it is the customer who is buying from 10 us, who picks up any transmission tariff cost. 11 So, the export revenues we are 12 including here don't explicitly include it because 13 it is what that customer pays us at the border and 14 they pick up the transmission tariff costs. 15 What we do include in all of our 16 analysis is the fact that we, the exporter, have 17 to offset the losses that our exports cause in 18 their system. But, that's not the transmission 19 tariff payment itself. That's a loss re-payment. 20 We do include that in our analysis. But, it is 21 the customer buying from us that pays the tariff. 22 MR. ABRA: Do I understand you to 23 be -- excuse me. The transmission tariff is 24 offset by an export price that you are receiving 25 for the -- 429 1 MR. WOJCZYNSKI: No. What we receive 2 in the export rate from the customer, it doesn't 3 have to cover the transmission tariff because the 4 export customer is already paying it themselves. 5 We don't pay it. 6 MR. ABRA: Okay. 7 Mr. Wojczynski, you have referred and 8 you seem to have a pretty good recollection of the 9 information requests that have been filed. 10 CAC/MSOS filed an information request 11 of you in the first part -- it is 89b -- and it 12 refers to -- you talk about larger periodic 13 scheduled capital expenditures are assumed to 14 generally fall outside the general study period 15 which extends to 2034 and 35 based on Manitoba 16 Hydro's experience with other Generating Stations. 17 It could include items such as: 18 "Controls, generator unit, rewedging, 19 rewinding, rerunnering, gate 20 rehabilitation, specific to the study 21 period Manitoba Hydro has included in 22 its partnership evaluations, a $2 23 million cost every ten years after 24 in-service for control irrigated 25 upgrades and 1.2 million in 2034 and 430 1 35 for rewedging of two generator 2 units." 3 Now, all of that really means a lot to 4 me. They are obviously capital expenditures that 5 you know you will be facing in the future of a 6 fairly significant amount. That's the essence of 7 the answer. Now -- or least the information that 8 you gave. 9 Are those larger capital expenditures 10 included in cost estimates such has been prepared 11 here? 12 MR. WOJCZYNSKI: When you say 13 "prepared here", you mean to the tables A.13, 14 14 and 15? 15 MR. ABRA: That's right. 16 MR. WOJCZYNSKI: There are two parts 17 to the answer. One is that when we have the 18 ongoing O&M for the station, what I call the 19 "fixed O&M". It generally covers all the ongoing 20 maintenance kind of cost. That would include some 21 of what you're referring to. 22 But, at some point -- particularly, 23 let's say electrical equipment after 35 years -- 24 it requires a very major overhaul and at some 25 point, that is an equivalent to essentially 431 1 replacing and rebuilding that piece of equipment. 2 In the economic analysis, we take that into 3 account with the fact that there is -- that the 4 life -- this depreciation study that we referred 5 to earlier, that the life of that facility is only 6 so long. At the end of its life, you have to 7 replace it. 8 So, it is covered, depending on the 9 significance of it and what time it happens, it is 10 covered in two different ways. 11 MR. ABRA: Okay, you do have capital 12 expenditures included in these tables; and if so, 13 where are they, sir? 14 MR. WOJCZYNSKI: We have capital and 15 related costs. I will using table A.13. I 16 guess -- you think -- 17 MR. ABRA: It doesn't matter which one 18 you use. 19 MR. WOJCZYNSKI: Okay. Table A.15, we 20 have capital and related costs, but -- so the 21 capital cost, per se, are in those tables, what I 22 was referring to right now though was the fixed 23 production cost has an O&M component in them. 24 MR. ABRA: Okay. Is it possible for 25 us to decipher exactly how much those are from 432 1 reviewing these tables? 2 MR. WOJCZYNSKI: From Wuskwatim, the 3 increment alone wouldn't be -- let me just think 4 here. I think we could, yes. 5 You could take the fix production 6 cost. Let me use the year 2016. It doesn't 7 really matter what year. If you look in the 8 Wuskwatim 09 case, it says under fixed production 9 cost: 79.3 million. 10 MR. ABRA: Yes. 11 MR. WOJCZYNSKI: If you move back to 12 fixed production cost under the neutral base case, 13 it is 76.96. So, that's roughly 2.4 or so million 14 dollars per year, and the -- and that is in base 15 dollars, not future dollars. So, that sort of 16 average component. Some years you will have 17 higher O&Ms and some years you will have lower 18 O&Ms and so it is an O&M averaged over its life. 19 MR. ABRA: Okay. 20 MR. WOJCZYNSKI: I might add too that 21 you would expect immediately after the station is 22 in place to have some significant costs when you 23 are just getting things to work for the first 24 time. Then you expect the O&M to drop 25 substantially and then over time come back up 433 1 again. This is the O&M that would be in the 2 first, maybe, 30 years or so. 3 MS. WRAY: Just to add to that, in the 4 financial analysis which only goes to 2035 we did 5 have to break that out because of course in the 6 financial statements, you want to separate out 7 operating and capital. 8 In the response to CAC, first round 9 89b, we did give a few details such as that 10 Manitoba Hydro has included a $2 million cost 11 every ten years after in service for 12 control-related upgrades and $1.2 million in 13 2034/35 for rewedging of two generator units. 14 These would be consistent with the 15 kinds of expenditures that Mr. Wojczynski was 16 talking about, except in the case of the tables, 17 attachment 6 and so forth, they are embedded in 18 the production costs. 19 MR. ABRA: And the cost for the 20 partnership would be the same as you show in these 21 charts? 22 MR. WOJCZYNSKI: Yes -- well, wait a 23 second. The cost to the department would be the 24 same as shown. Let me explain my "yes". 25 There will be an operating and 434 1 maintenance agreement with the partnership between 2 Manitoba Hydro and the partnership. The intent of 3 that and what will occur is that the partnership 4 will pay for all the maintenance costs. 5 So, it will see them as they actually 6 occur, rather than -- it is not that they will 7 have a fixed charge like we have in here. It is 8 as the maintenance costs occur and as the 9 maintenance is done and the partnership is charged 10 on a full, overhead basis, fully -- 11 MS. WRAY: Recovered. 12 MR. WOJCZYNSKI: A fully recovered 13 basis. 14 MR. ABRA: Okay. One final question. 15 Where are the insurance costs reflected, sir, or 16 are they? I guess that should have been the first 17 question: Is there insurance? 18 MS. WRAY: We do have a provision for 19 insurance in the partnership financial statements. 20 As far as the Manitoba Hydro economic 21 statements are concerned, I am not sure if they 22 are in or out, but that might be partly because 23 Manitoba Hydro would make a decision whether to 24 self-insure versus purchase insurance. 25 MR. ABRA: Can you find out for us, 435 1 Ms. Wray, whether they are contained in here? 2 MS. WRAY: I can certainly direct you 3 to where they are in the partnership statements. 4 MR. ABRA: We know where they are in 5 the partnership -- we will be getting to those. 6 MR. WOJCZYNSKI: Can I add, in terms 7 of these tables, they are based on Manitoba Hydro 8 practices where we self-insure. So, we wouldn't 9 have included specifically -- 10 MR. ABRA: Well, if it is 11 self-insurance -- it is captured then in this 12 document even if it is self-insurance. 13 MR. WOJCZYNSKI: Well, we don't pay a 14 premium though. 15 MR. ABRA: No, I realize that. 16 MR. WOJCZYNSKI: We pay the cost as 17 things happen in self-insurance and so that is 18 covered. 19 MS. WRAY: I am also informed from the 20 back row that insurance during the construction 21 period is included in those numbers table A.6. 22 MR. MAYER: On that point as well, 23 before you get to the next question, I have to 24 assume you must carry some kind of catastrophe 25 insurance? 436 1 MS. WRAY: Yes, we have a manager who 2 looks after risk management of that nature and 3 there are a variety of policies where we are 4 covered against liability, for example, and 5 construction is one instance where we take out 6 insurance. 7 MR. MAYER: I mean heaven forbid this 8 should happen, but everybody spends a lot of 9 time -- and I go through a lot of grief in 10 airports every time I come down here, except when 11 I fly the "other" airline. 12 For example, somebody being really 13 upset with Manitoba Hydro or with the people of 14 Manitoba, decides to literally blow up your Jenpeg 15 dam control structure while you are at fairly high 16 water. That would literally inundate Cross Lake. 17 That I would consider to be a catastrophe. 18 I would consider it the same way if 19 the same thing happened to Notigi because I would 20 be at the bottom end of that. 21 Are you insured for that kind of 22 stuff? 23 MS. WRAY: I would have to check as to 24 whether we are insured against that particular, I 25 would hope, very remote occurrence. 437 1 I can tell you that we do look very 2 carefully at when to insure and when to take 3 actions ourselves. 4 We have both somebody who is 5 particularly dedicated to what you might call 6 "conventional insurance" and when we offset the 7 risk to a third party, we also have an enterprise 8 Risk Management Department, and we have a 9 corporate committee chaired by a V.P. and attended 10 by division managers. This is a relatively new 11 occurrence in the last two or three years where 12 the focus of our discussions are on risk. So, it 13 is not something that we might overlook. 14 As to the question you posed, whether 15 that is something you can even insure against, I 16 am not sure. 17 THE CHAIRMAN: Miss Wray, am I 18 correct, did I hear you say for the purpose of the 19 Generation Station and the transmission Line 20 during the construction period, Hydro does 21 purchase or the partners will purchase outside 22 insurance for that? 23 MS. WRAY: Yes. 24 THE CHAIRMAN: Okay. Fine. I just 25 wanted to make sure. 438 1 MR. ABRA: You were asked in one of 2 the information requests about the forecasting of 3 costs and you forecast them as low as possible. 4 Included in your response was an 5 aspect related to harmony in the work camp and, in 6 fact, having harmony in the work camp can be 7 significant with respect to making sure costs stay 8 as low as possible. You give a significant 9 description in CEC/MHNCN1, answer 7a related to 10 having harmony in the work camp and job 11 satisfaction and so forth. 12 Do you have any way of estimating what 13 the financial impact to the capital cost would be 14 if harmony is not achieved? It is not something 15 that we would normally think of as being a capital 16 cost, but obviously you thought that it was from 17 past experience that it is important to have 18 harmony in the work place and camp? 19 MR. ADAMS: Yeah. 20 THE CHAIRMAN: Mr. Adams. 21 MR. ADAMS: Yeah, I don't know how 22 best to respond to that one. In a way, it depends 23 on the degree of disharmony. It is very, very 24 difficult to estimate. 25 You may recall Hydro Quebec had an 439 1 experience -- I am guessing 15 years ago, where 2 some disgruntled -- more than that? 3 MR. SARGEANT: Early '70s. 4 MR. ADAMS: Early '70s, thank you -- 5 where some disgruntled workers basically destroyed 6 the camp. An event like that would be 7 catastrophic on the costs. 8 We have had minor disturbances in our 9 own camps, but we have had mechanisms in place to 10 sort them out and get them dealt with right away. 11 The most practical way of dealing with 12 it is to estimate what it would cost for, say, a 13 year's delay and we have ways of doing that. 14 MR. ABRA: I am sorry, I don't follow 15 your answer, Mr. Adams. 16 Are you saying that it might lead to 17 as much as a year's delay if there is not harmony 18 in it? 19 MR. ADAMS: I don't like the word 20 "harmony" because it -- we will have a labour 21 agreement covering all the workers on the site. 22 That agreement will have a no 23 strike/no walk-out clause and we have had it on 24 every project we have had in the last 30 years. 25 So, the expectation is that any issues 440 1 that arise with the labour force on site will be 2 dealt with through mechanisms on the collective 3 agreement. 4 In the unlikely event that some of the 5 work force take action outside of the terms of the 6 collective agreement, at the extreme you could see 7 it costing a year in service because a lot of the 8 construction activities are seasonal dependent. 9 So, if you miss a spring, you are stuck to a next 10 summer. That's probably the worst case scenario. 11 MR. ABRA: What are you doing then to 12 try to meet that eventuality, sir? And I might 13 say, for the record, the word "harmony" was your 14 word -- not yours personally, but it in the 15 answer. 16 MR. ADAMS: What we are doing is 17 negotiating a collective agreement with a group 18 called The Allied Hydro Council, which is an 19 umbrella group representing all the craft unions 20 that will be engaged on site and there will be a 21 collective agreement in place that covers all 22 labour relationships on the site. 23 MR. ABRA: Has there been a 24 noike/no lock-out provision put in place? 25 MR. ADAMS: There is in the existing 441 1 collective agreement and our expectation is that 2 it will be in the renewed collective agreement. 3 MR. ABRA: That's the Burntwood Nelson 4 Collective Agreement? 5 MR. ADAMS: Yes. 6 MR. ABRA: So, there is one at the 7 present time? 8 MR. ADAMS: Yes. 9 MR. ABRA: And you are hoping to 10 negotiate it into the next one? 11 MR. ADAMS: We expect to negotiate it 12 into the next one. 13 MR. ABRA: Can you please explain for 14 me what the MH northern purchasing hiring policy 15 initiates are -- or "initiatives", I am sorry. 16 MR. ADAMS: Manitoba Hydro has several 17 policies. But, essentially, we have -- from a 18 purchasing perspective -- we have a ranking of 19 priorities where we would prefer to buy materials 20 and services from, firstly, local Aboriginal 21 communities. Secondly, other Aboriginal 22 businesses in the area. Thirdly, other northern 23 businesses. Fourthly, Manitoba businesses. And, 24 fifthly, Canadian businesses; and lastly, offshore 25 or overseas businesses. 442 1 There are programs in place to make 2 that happen, including restricted tendering, 3 negotiated contracts. In some cases, we are 4 prepared to pay modest premiums to accommodate 5 those sorts of initiatives. I emphasize the word 6 "modest". 7 MR. ABRA: What is modest? 8 MR. ADAMS: Well, it varies with the 9 nature of the work, the location and the scale of 10 the job. 11 We recognise that in some cases the 12 local -- particularly local contractors are not in 13 a position to complete with large outside 14 contractors and we go out of our way to make sure 15 that they have an opportunity to get the work. 16 In respect of employment, again it is 17 subject to negotiation with the Allied Hydro 18 Council. But, expectation is that there will be a 19 ranking of priorities. Firstly, for very local, 20 Aboriginal people. Secondly, other northerners, 21 and then thirdly, through the province, through 22 the union hiring halls, and finally, if necessary, 23 out of province. 24 MR. ABRA: Is this prioritization that 25 you refer to, Mr. Adams, I assume it has some 443 1 impact on cost, does it, and if so, do you have 2 any way of determining how much it is as far as 3 your estimates are concerned? 4 MR. ADAMS: It does have some effect 5 on cost and to the extent possible, we have 6 allowed for that in the estimates. 7 MR. ABRA: So, they have been taken 8 into consideration in the estimates you have given 9 to us? 10 MR. ADAMS: Yes. 11 MR. ABRA: Do you have any percentage 12 as to what we can consider in that regard? More 13 than 5 percent or less than 5 percent? 14 MR. ADAMS: On the overall cost of the 15 project, probably ... 16 MR. ABRA: Yes. 17 MR. ADAMS: On the overall project as 18 opposed to individual components of it, probably 19 somewhere between five and 10 percent. 20 MR. ABRA: Okay. During the 21 construction of any project, but in particular 22 Wuskwatim simply because this is what we are 23 dealing with, do you have any kind of a process 24 during the course of the ongoing construction to 25 evaluate costs and where there has been overruns 444 1 and steps to be taken to mitigate those and so 2 forth? Kind of a check-back system, for want of a 3 better expression? 4 MR. ADAMS: Yes. We have a fairly 5 sophisticated cost reporting project management 6 system that evaluates costs to date, the expected 7 costs, predicted costs in the project, and on a 8 regular basis, evaluates what you can do to 9 improve them. Our preference is to come in under 10 budget. 11 MR. ABRA: Well, it is for most of us. 12 How often is that review done, sir? 13 MR. ADAMS: Every month. 14 MR. ABRA: Every month? 15 MR. ADAMS: Yes. 16 MR. ABRA: To go back to the question, 17 Mr. Mayer asked about disaster recovery: Is there 18 any kind of disaster recovery plan with respect to 19 Wuskwatim? 20 MR. ADAMS: There will be once it is 21 built. 22 MR. MAYER: There should be before 23 it's up. 24 MR. ABRA: Okay. 25 MR. ADAMS: Well, I mean -- 445 1 MR. ABRA: Is there cost inherent in 2 that, sir, that goes into the estimates? 3 MR. ADAMS: No. No. We have an 4 emergency response plan for every plant that we 5 have in service, and we will develop one -- well, 6 once Wuskwatim is in service, we will put in place 7 an emergency response plan for that. And in 8 deference to Mr. Mayer's comment, there will be an 9 equivalent mechanism in place during construction. 10 MR. ABRA: But the costs to date are 11 not included in the estimates? The anticipated 12 costs in that regard are not included in the 13 estimates we have been dealing with -- or are 14 they? 15 MR. ADAMS: The costs associated with 16 physical features to look after disaster or 17 emergency responses would be in the estimate. 18 MR. ABRA: Where? 19 MR. ADAMS: In the capital cost. The 20 cost of maintaining an energy response plan during 21 operation is in Fixed Operation and Maintenance. 22 MR. ABRA: All right. I note the 23 time, Mr. Chairman. I know this is scintillating 24 and exciting, do you wish me to go on? I still 25 have a few more areas I wish to cover with respect 446 1 to capital costs. I leave it to you. 2 THE CHAIRMAN: Well, you seem to be on 3 a good roll. 4 MR. ABRA: Okay, you want me to keep 5 rolling. 6 THE CHAIRMAN: Keep rolling. 7 MR. ABRA: Thank you. 8 I would like to take you -- where is 9 David? 10 David, I asked you to have ready, if 11 you could, in the original filing, chapter 2, 12 page 9, the figure 2.5, entitled "Range 13 Estimates". 14 I am sorry, but the light will be in 15 your eye, I think, Mr. Adams, when I put it up on 16 the screen. There we go. Can that be blown up at 17 all or is that as large as -- can you see that 18 okay? 19 Looking at that estimate, does it 20 include both direct and indirect costs? 21 MR. WOJCZYNSKI: Yes. 22 MR. ABRA: What is contained in each, 23 Mr. Wojczynski? 24 MR. WOJCZYNSKI: Are you asking what 25 the break down is between direct and indirect is 447 1 in here? 2 MR. ABRA: Yes. 3 MR. WOJCZYNSKI: The total directs are 4 257 million. The total indirects are 260 -- I 5 will round off to the millions: 256 million for 6 the total -- pardon me. 257 million for the total 7 directs, 266 million for the indirects, for a 8 total of 523 million. Then we have the 9 contingency of 45 million, giving us a total 10 project cost in 2002 dollars of 568 million. 11 MR. ABRA: Is that up to date, 12 Mr. Wojczynski, as far as you're aware after the 13 revisions that were done in tab 3? 14 MR. WOJCZYNSKI: That was the 15 estimate -- what I just indicated was the estimate 16 for the 2009 in service date option and that was 17 submitted in the original. 18 That wouldn't be the exact numbers for 19 today for the forward-looking. There would be 20 slightly -- there may be some slight differences. 21 There are around 17 million more. Let's recall 22 that this is the generation component only as 23 well. That 17 is the money we talked about 24 earlier. 25 MR. ABRA: That is not reflected in 448 1 this figure 2.9? 2 MR. WOJCZYNSKI: No, but we would 3 expect that the kind of range and the 4 probabilities would be transferrable from the 5 earlier estimate to the current estimate. So, the 6 kind of contingency and the kind of probabilities 7 would be transferrable. The starting point -- 8 MR. ABRA: So, the expected cost may 9 be further up the line then on the graph? 10 MR. WOJCZYNSKI: The whole line has 11 been moved up, because that $17 million cost due 12 to delay is now incorporated into all the costs. 13 So, the whole base has moved up. In effect, that 14 is like an almost known and fixed cost now. It 15 just gets added to the bottom here. 16 MR. ABRA: And moves the whole line 17 up? 18 MR. WOJCZYNSKI: Yes. 19 MR. ABRA: Okay. Does the range still 20 move or does it ... 21 MR. WOJCZYNSKI: The whole curve moves 22 up. So, the range, the plus/minus would still be 23 applicable, but just, essentially, you add 17 to 24 every number on that curve. 25 MR. ABRA: Originally you projected 449 1 the range to be 520 million and 620 million, the 2 range-estimating process, and you said you were 90 3 percent confident. Now, is that varied? 4 MR. WOJCZYNSKI: Now, essentially, 5 from 540 million to 637 million. 6 MR. ABRA: Okay. So, you add the 7 17 million on then to each end? 8 MR. WOJCZYNSKI: Yes. 9 MR. ABRA: What is the 10 range-estimating process? I should have asked you 11 that first, sorry. 12 MR. WOJCZYNSKI: I could give a first 13 cut explanation and if you want to, we could get 14 into more detail. 15 The first cut explanation is that we 16 develop a good design for the project, good 17 schedule, good approach. 18 Then we do a straightforward cost 19 estimating, where we do our best guess as to what 20 each cost component will be. 21 Then we take that and we go through an 22 exercise where we identify -- what are all the 23 significant risks associated with this project. 24 Risks that the schedule may be a bit longer in 25 certain places or that costs may go up. Or, you 450 1 may want to call it a risk or an uncertainty, that 2 there will be less. 3 We identify all the various 4 uncertainties that are there -- at least the 5 significant ones. 6 Then we develop what is the cost 7 impact of each one of those components and 8 assign -- and then develop an estimate of the 9 probability of that. 10 Then we do what is called a Monte 11 Carlo simulation of all those various factors to 12 come up with this overall curve that is a 13 combination of all the various possibilities, all 14 the pluses and minuses that may possibly occur. 15 Then we get this probabilistic combination of the 16 cost. 17 We use a U.S. consultant who is 18 probably the world leader in this area, and so by 19 doing this, we are able to get a very good handle 20 on the cost uncertainty of Wuskwatim. 21 I might add that it is a very flat 22 curve and our consultants have commented on that 23 with us that because we have so much information 24 about Wuskwatim -- I refer to it as a wealth of 25 information -- there is a lot of knowledge about 451 1 Wuskwatim. It is not a risky project in terms of 2 its foundation, conditions or any of the 3 fundamentals. We have done a lot of work to get a 4 lot of certainty on the engineering information. 5 So, there is not a great deal of 6 uncertainty in this project, but we still went 7 through the exercise to ensure that we have a good 8 handle on that. 9 MR. ABRA: Now, you say that you had 10 independent consultants review it. Was that 11 decision science? 12 MR. WOJCZYNSKI: Yes, it is, sir. 13 MR. ABRA: Okay. Did they review it 14 or did they assist in the preparation of it? 15 MR. WOJCZYNSKI: They were part and 16 parcel of the process of doing -- of preparing 17 this. That is part of their kind of role to add 18 their expertise to the exercise. But, then 19 afterwards, we had a separate consultant 20 independently review after the fact when all the 21 estimates were put together. 22 MR. ABRA: So, decision science then, 23 because they were in the actual preparation of 24 risk analysis, in essence they are not 25 independent, are they? 452 1 MR. WOJCZYNSKI: They are independent 2 of the original preparation of the estimate 3 and ... yeah. They facilitate and add their 4 expertise to it, but they are independent in the 5 sense that they did not develop the original 6 estimate and come at it in that sense with fresh 7 eyes. 8 MR. ABRA: Were there changes made as 9 a result of their input? 10 MR. WOJCZYNSKI: No -- okay. 11 We went through an intensive exercise 12 with them and with others. If we had discovered 13 something that would have caused us concern that 14 we hadn't been aware of earlier, we would have 15 gone and done something different. 16 As it turns out, in the case of 17 Wuskwatim, that there was nothing revealed that 18 had not been appreciated as being an issue before 19 and everything had been dealt with. So, nothing 20 different was done. But, it could have been if 21 there had be some uncertainty. 22 MR. ABRA: So, you're saying that you 23 had them consulted and if they had made 24 suggestions for change then, you would have dealt 25 with those or whatever. But, they didn't make any 453 1 suggestions for change? 2 MR. WOJCZYNSKI: Okay, let's back up a 3 little bit. 4 The corporation we are talking about 5 are not experts in designing Hydro plants. They 6 are experts in working with various kinds of 7 entities to not just Hydro construction, other 8 construction projects or the kinds of projects to 9 help whoever the entity is, to get a good handle 10 on what are the uncertainties associated with 11 whatever it is you are looking at. 12 So, they don't come in and say, ah, 13 you should have used a different design over here. 14 They are experts at working with all the people 15 involved to expose or reveal any difficulties that 16 are there and also to, in a rigorous fashion, 17 develop a probabilistic uncertainty range. That's 18 what they bring to the table. They don't bring 19 expertise in hydroelectric design. 20 We do have other consultants who are 21 experts in hydroelectric design, particularly 22 Acres who have been involved for many years and 23 have expertise from around the world. They are 24 heavily involved and they certainly bring their 25 expertise to the table. They are also one of the 454 1 consultants who is part of this team that did the 2 uncertainty analysis. 3 MR. ABRA: Now, you then had Both 4 Belle and Robb involved; did you not? 5 MR. WOJCZYNSKI: Yes. 6 MR. ABRA: Was that after the fact to 7 do an independent review? 8 MR. WOJCZYNSKI: Yes. 9 MR. ABRA: It is my understanding that 10 they merely reviewed the Generation component and 11 not the Transmission component; am I correct? 12 MR. WOJCZYNSKI: Yes. 13 MR. ABRA: What was the reason for 14 that? 15 MR. WOJCZYNSKI: There are two parts 16 to the answer. 17 First of all, Both Belle Robb's 18 expertise is in the area of generation and that's 19 the larger part of the project anyways. 20 The second reason is that Manitoba 21 Hydro has a lot of experience and expertise on 22 building transmission. We do it every year. We 23 do it on a continual basis. So, we have a lot of 24 familiarity with the current cost, for instance, 25 and the practices. We are active in working with 455 1 transmission in the same area that the Wuskwatim 2 transmission will be built. 3 So, there isn't the same need and 4 there wasn't the same desire to get an independent 5 expert to do that. 6 MR. ABRA: Did Both Belle Robb review 7 the production costs at all, Mr. Wojczynski? 8 MR. WOJCZYNSKI: No, that wouldn't be 9 their area of expertise. They just looked at the 10 capital cost side. 11 MR. ABRA: Now, you raised an issue 12 that you made yesterday -- and I don't ask you 13 this sarcastically or facetiously, believe me. 14 You made the comment yesterday in your 15 presentation that Hydro has extensive experience 16 in building dams. Now, you haven't built one for 17 almost 30 years. Where does that "extensive 18 experience" come from? As I say, I am not being 19 sarcastic when I make that comment. 20 MR. ADAMS: Firstly, the last one was 21 completed in 1992, so it is not exactly 30 years. 22 MR. ABRA: Which one was completed in 23 '92, Mr. Adams? 24 MR. ADAMS: Limestone. 25 MR. ABRA: Okay. 456 1 MR. ADAMS: Since then, we have worked 2 on most of our projects in one way or the other. 3 We have extensive experience in 4 building -- since I have been with Manitoba Hydro, 5 Kettle, Long Spruce, Limestone -- 6 MR. ABRA: They were all built in the 7 '70s though; were they not? 8 MR. ADAMS: '70s through to '80s, 9 yeah. But, we still have people around who worked 10 on those projects. We have a corporate memory of 11 what it takes to get them done. It is not to say 12 that we have not had significant turnover in our 13 staff and one of our objectives is to rebuild a 14 lot of capability within the company. 15 Part of the reason we retain people 16 like Acres to do the design for us is that they 17 are working in the environment on a continuous 18 basis. Part of the reason we retain people like 19 Both Belle Robb is to bring fresh and current 20 information to our processes. 21 MR. ABRA: Now, Both Belle Robb gave a 22 report to you which was not disclosed, but you did 23 quote from it in one of the information requests. 24 It says -- and I quote: 25 "The first week of the overview in 457 1 Winnipeg was a combination of reading 2 documents, complimented by oral 3 presentations by the responsible 4 personnel. 5 In the second week, the schedule and 6 the cost components comprising the 7 direct and indirect costs were 8 considered in more depth. 9 Given the time frame, the checks that 10 were made were generally of a 11 comparative, qualitative nature, using 12 in-house data and precedent and were 13 made on key-cost components or the 14 methodology adopted. Only where 15 appropriate were spot-checks carried 16 out." 17 Now, the issue then -- were they just 18 given two weeks to do their review, and was this 19 scope limited at all by Manitoba Hydro? 20 MR. WOJCZYNSKI: The scope was not 21 limited and they were not restricted to two weeks. 22 They had the material for a significantly longer 23 period of time, and what we are referring to there 24 was the period of time where it was the direct 25 face-to-face kind of involvement. 458 1 MR. ABRA: Is it your position, 2 Mr. Wojczynski, on behalf of the company that 3 there was sufficient time for Both Belle Robb to 4 do their review? 5 MR. WOJCZYNSKI: Yes. 6 MR. ABRA: Because they have made a 7 specific comment, as I said earlier, given the 8 time frame, the checks that were made were 9 generally of a comparative nature as opposed to 10 being more in the form of doing spot checks and so 11 on. That's their answer. 12 I am sorry, I am reading, sir, from 13 CAC/MH/NCN I - NFAAT 11a. 14 MR. WOJCZYNSKI: I am sorry, Mr. Abra, 15 what was your question then? 16 MR. ABRA: What I am asking, sir, is 17 how much time did they actually spend on it? You 18 have already said that the scope wasn't limited by 19 Hydro at all, but how much time did they actually 20 spend on this review and what was the nature of 21 the review carried out? 22 MR. WOJCZYNSKI: They spent nearly two 23 months on it. When we are talking about giving 24 the time frame, what we are referring to is 25 that -- what "they" were referring to, pardon me. 459 1 MR. ABRA: Well, it is their words. 2 You have quoted from their report. 3 MR. WOJCZYNSKI: Yes -- that this 4 wasn't an one-year exercise with them 5 re-estimating the whole project. You can do two 6 different approaches. One is to ask someone to 7 come in and do a brand new estimate starting from 8 scratch with everything. That might be, say, a 9 year. It is a very major effort. 10 The other approach -- and that is what 11 this is referring to here. We asked them, we 12 said: Here's the estimate we have. We are not 13 asking you to redo it the whole estimate, but we 14 are asking you to go and review it to see whether 15 you think it is a reasonable estimate and they did 16 that. 17 If there were there any places they 18 felt they wanted to go into more detail, they did 19 what were called the "spot checks". 20 For instance, these were major 21 components, some of the largest components in the 22 cost. So, they went and checked what other 23 information they had on turbine costs or on gate 24 and spillway costs or other components like that. 25 That was the kind of process. So, that as 460 1 distinct from developing a brand new estimate from 2 scratch. 3 MR. ABRA: Now, they did express 4 reservations when they released the high end of 5 your estimated cost; did they not? 6 If you go over the page to page 2, you 7 will see the reference: 8 "The likelihood that the estimated 9 cost has been understated is low." 10 That's not really a clean bill of 11 health, is it? 12 MR. WOJCZYNSKI: No, it is the 13 opposite. 14 Sorry, if I could -- what they are 15 saying, if I -- this is lines 26 and 27 -- 16 MR. ABRA: Yes. 17 MR. WOJCZYNSKI: -- that you're 18 referring to? 19 MR. ABRA: That's right. 20 MR. WOJCZYNSKI: With the addition of 21 the higher figure 80 percent, the likelihood that 22 the estimated cost has been understated as low is 23 actually an affirmative statement. What they are 24 saying there is that if you go and use the 80 25 percent confidence interval number, it means that 461 1 there is only a low probability that the cost will 2 be higher. Like, this is actually a positive 3 statement saying that if you used 80 percent, 4 there is not much chance it will be higher than 5 that. 6 MR. ABRA: Well, I don't want to be 7 argumentative, but when I have read estimates of 8 this nature before, if they think that they are 9 reasonable, they say that the estimates are 10 reasonable. 11 What struck me is wording here: 12 "The estimated cost has been 13 understated as low." 14 MR. WOJCZYNSKI: 15 "The likelihood that the cost has been 16 understated is low." 17 Your concern is not that the direction 18 of this is incorrect, you are surprised they are 19 not expressing a more positive wording? 20 MR. ABRA: That's right. 21 MR. WOJCZYNSKI: Ah. 22 MR. ABRA: If you go over the page, 23 you will see: 24 "In regard to indirect cost, the basic 25 mitigation compensation expense might 462 1 be underestimated." 2 MR. WOJCZYNSKI: Okay, well, if we can 3 go to the last sentence: 4 "It is thus considered that the amount 5 of contingency appropriate to the 6 degree of confidence required --" 7 And we are looking for 50-50 here. We 8 wanted our best guess: 9 "-- and as determined by the range 10 estimating approach, should be 11 sufficient to accommodate the cost 12 factors that might be experienced." 13 To us that was the final conclusion 14 and that what they were saying in here is that we 15 have put in a contingency to account for 16 uncertainties -- which is what the whole range 17 estimating approach was about. And that given 18 that -- if we wanted 50-50 estimate, which is what 19 we would normally use in an economic valuation, 20 that that contingency we put in is sufficient to 21 cover the cost factors that might be experienced. 22 So, for us, that was a very positive conclusion. 23 MR. ABRA: So, the statement on page 3 24 that I read a moment ago, "The basic compensation 25 spent might be underestimated" didn't cause you 463 1 concern because of the -- 2 MR. WOJCZYNSKI: Yeah, that wasn't an 3 area that they actually had a -- I really 4 reviewed. Their commentary, in effect, is saying 5 there that they are not familiar with the 6 compensation picture. They look at it -- at our 7 number and if they are -- I will put in my words 8 here because I haven't talked to them about this, 9 but my expectation -- 10 MR. ABRA: I am sorry, did you say 11 that you hadn't or that you did? 12 MR. WOJCZYNSKI: I personally have not 13 talked to them about this line. 14 My expectation is that part of what 15 this is referring to here, if you look at the 16 compensation that might be due to Generation 17 Projects typically, that the compensation 18 component that we would have been estimating with 19 Wuskwatim would seem possibly low compared to 20 other Generating Stations. But, that is directly 21 attributable to the impacts that this project has. 22 MR. ABRA: Okay. Were any of your 23 estimates changed as a result of Both Belle Robb's 24 report, sir? 25 MR. WOJCZYNSKI: No. 464 1 MR. ABRA: Okay. And it is my 2 understanding that transmission costs were 3 estimated plus or minus 20 percent. How is that 4 determined? First of all, is the 20 percent 5 correct? 6 MR. WOJCZYNSKI: Ron? 7 MR. ABRA: Mr. Mazur? 8 MR. MAZUR: 20 percent is an average 9 between our station costs and our transmission 10 costs. Our experience with transmission, we built 11 recent transmission, we believe our estimates fall 12 into plus/minus 10 percent. Our station costs 13 typically are in the order of plus/minus 30 14 percent, typically because much of our station 15 experiences with existing stations or adding on to 16 existing stations and they are not all 17 standardized. They tend to be a case by case 18 basis. 19 MR. ABRA: So, it is Hydro's 20 experience that is being used in that regard then? 21 MR. MAZUR: That's correct. I might 22 also add as an extension of our resources, we have 23 used consultants -- not for Wuskwatim, but for 24 other stations, typically using the same type of 25 methodology that Hydro uses. 465 1 MR. ABRA: What is the Transmission 2 Development Fund -- to jump to a different topic, 3 I am sorry. 4 MR. WOJCZYNSKI: I would like to 5 answer the Transmission Development Fund question, 6 but perhaps I could supplement, slightly, my 7 earlier answer -- 8 MR. ABRA: Sure. 9 MR. WOJCZYNSKI: -- on the Both Belle 10 Robb review, two comments. 11 I just had a confirmation that in 12 terms of the compensation mitigation expense 13 issue, they had the whole cost estimate to look at 14 and had all the information we had that was the 15 background to it. 16 But, in this particular one, as I was 17 indicating -- and I just had some supplementary 18 confirmation of it. They didn't really try to 19 assess that one. They saw the number, they know 20 it. Others have other kind of -- in other 21 projects, but they didn't try and delve what might 22 be reasonably specific to the circumstances. That 23 was not the kind of thing that would be in their 24 normal area of expertise. 25 Their normal area of expertise is 466 1 design and construction of a project, not 2 mitigation compensation of environmental impacts. 3 The second comment I would like to add 4 to that is I had said that I had not spoken 5 directly to them on that. The reason for that is 6 that this was not something that was -- this work 7 was done by them reporting to our vice-president, 8 Mr. Adams, not to me or the staff working for me. 9 So, to have a more independence, rather than those 10 who actually did the work being in charge of 11 review of that work. 12 Your question now is the Transmission 13 Development Fund? 14 MR. ABRA: No, just to pick up on that 15 then, so basically, do I understand you to be 16 saying that the basic mitigation and compensation 17 cost that Both Belle Robb has commented on -- 18 although, as you say, it wasn't really within 19 their area of expertise, I gather, and not really 20 part of their retainer -- has there been no 21 independent review of those costs then? 22 MR. WOJCZYNSKI: No, there hasn't 23 been. In terms of anybody being able to ascertain 24 what would be a reasonable estimate from a -- I 25 would say that we are as good as anybody else who 467 1 could do that, given the kind of information it 2 requires, the internal information as to what the 3 mitigation compensation was for all the other 4 projects and activities that have gone in 5 Manitoba. 6 MR. ABRA: Okay, sorry. Going on to 7 the Transmission Development Fund? 8 MR. WOJCZYNSKI: Yes. The 9 Transmission Development Fund is a means to 10 provide an enduring benefit to the Aboriginal 11 people who make traditional use of the Crown lands 12 that the transmission line goes through. 13 We are talking about when we build a 14 new transmission, we are not talking about 15 existing transmission, where we need a new 16 right-of-way. It is Crown land that is in an area 17 that an Aboriginal community has a traditional use 18 for. 19 What we do is take 5 percent of the 20 new transmission costs and effectively assign that 21 into a fund and then the interest income from that 22 is then utilized to make payments to the community 23 for them to use for community development or other 24 purposes. 25 MR. ABRA: What that figure as it 468 1 stands now? The original filing referred to 2 5.58 million, but I believe that has been updated 3 to 7.8-milligram; am I correct? 4 MR. WOJCZYNSKI: I believe that is 5 right. 6 MR. ABRA: Mr. Mazur is nodding in the 7 affirmative? 8 MR. MAZUR: Yes. 9 MR. ABRA: It has been raised to 10 7.8 million? 11 MR. MAZUR: That's right. 12 MS. WRAY: Part of that difference 13 might be just the change from base dollars to 14 current dollars. For example, I see in one of the 15 interrogatories we talked about a $6.9 million 16 amount being equivalent to a $5.58 million base 17 dollar amount. 18 MR. ABRA: Well, has 5.58 million been 19 raised to 7.8 million for the purposes of the 20 Transmission Development Fund, that's in 2002 21 dollars? 22 MR. MAZUR: I believe that is 23 correct -- 24 MR. ABRA: Can you check that? 25 MR. MAZUR: -- but I will endeavour to 469 1 check that. 2 MR. ABRA: Thank you. 3 4 (UNDERTAKING MH-6: Check to verify if 5.58 5 million was raised to 7.8 million for the purposes 6 of the Transmission Development Fund in 2002 7 dollars) 8 9 MR. ABRA: Now, are those costs 10 included in the capital costs estimates? 11 MR. WOJCZYNSKI: Yes. 12 MR. ABRA: And are they transferred to 13 the partnership in the event it comes into being? 14 MR. WOJCZYNSKI: No. 15 MR. ABRA: Why not? 16 MR. WOJCZYNSKI: Because the 17 transmission is going to be owned by Manitoba 18 Hydro, not by the partnership. What we have is an 19 arrangement for Manitoba Hydro to be reimbursed by 20 the partnership for use of the transmission. 21 MR. ABRA: Okay. Who is responsible 22 then for funding the fund? Is it Manitoba Hydro? 23 MR. WOJCZYNSKI: Manitoba Hydro is, 24 yes. 25 MR. ABRA: Okay. Now, pre-project 470 1 training programs, just a couple of questions. 2 My understanding is that Hydro will 3 fund $5 million for the ATEC and ATEC will 4 administer it? The figures that I have are 3.75 5 million for NCN and 1.25 million for other 6 Aboriginal groups, and it is to administered by 7 ATEC; does that sound correct? 8 MR. WOJCZYNSKI: Yeah, that's ATEC ... 9 MR. ABRA: Mr. Thomas? 10 MR. THOMAS: The answer to your 11 question is yes. 12 MR. ABRA: Thank you. Everybody else 13 was looking at each other. 14 The Manitoba and federal governments 15 will be contributing to that fund as well? 16 MR. THOMAS: Yes. 17 MR. WOJCZYNSKI: Yes. 18 MR. ABRA: Sorry, in -- 19 MR. WOJCZYNSKI: The provincial 20 government is also providing funding for the 21 pre-project training program. 22 MR. ADAMS: The federal government has 23 provided a fairly nominal amount of money to date. 24 The province, Manitoba Hydro and representatives 25 of all the interested Aboriginal groups have 471 1 applied to the federal government for considerably 2 more money and as I understand it, that is 3 currently under review in the federal system. 4 MR. ABRA: So, if there is federal 5 funding received, it is trite to say you haven't 6 received it yet? 7 MR. ADAMS: The cheque is in the mail, 8 yeah. 9 MR. MAYER: We don't want hear about a 10 sponsorship program in here. 11 MR. ABRA: What is the expression, one 12 of the three biggest lies in the English language. 13 Has the provincial contribution been 14 received yet, sir? 15 MR. ADAMS: Do you know what ... I am 16 pretty sure a portion of it has, but I can check 17 that and find out exactly where the cash has gone. 18 MR. ABRA: But, it is contemplated 19 that the provincial contribution will be an 20 one-time payment? 21 MR. ADAMS: Contribution will be 22 spread over the period of the training plan. 23 MR. ABRA: I am sorry. Manitoba 24 Hydro's payment. I misspoke, I am sorry. 25 Is Manitoba Hydro's contribution an 472 1 one-time payment? 2 MR. ADAMS: No. It is project related 3 and it will be spread in increments over the 4 training period. 5 MR. ABRA: But, it won't be greater 6 than $5 million? 7 MR. ADAMS: Subject to check, I have 8 to -- 9 MR. ABRA: If you could check that 10 then. 11 MR. ADAMS: It probably will be more 12 than $5 million because the training program 13 covers both Wuskwatim and Gull. Maybe 5 million 14 attributable to Wuskwatim, I would have to check. 15 MR. ABRA: Wuskwatim is what we are 16 interested in, of course. If you could check that 17 for us. 18 MR. ADAMS: Yes. 19 20 (UNDERTAKING MH-7: Check to see how much money is 21 attributable to Wuskwatim Training Program) 22 23 MR. WOJCZYNSKI: Could we do a 24 clarification for a moment? We were having some 25 trouble following ATECs and everything else. 473 1 When we were talking about the 2 5 million earlier -- I believe you're asking about 3 the $5 million and how that is getting looked 4 after? 5 MR. ABRA: That's right. 6 MR. WOJCZYNSKI: There is two 7 components, there is 3.75 million and 1.25 8 million. 9 The 3.75 million is for what we call 10 ATEC. 11 Then we weren't sure whether your 12 question was for the other 1.25, was that MAET you 13 were asking about or ATEC? Well, okay, let me 14 just say it: 3.75 million is being administered 15 by ATEC and 1.25 million is by MAET, which is 16 Advanced Education and Training from the 17 provincial government and that is for other 18 Aboriginal people, rather than NCN. 19 MR. ABRA: Okay, but the 1.25 is for 20 other Aboriginal people, it's not for NCN? 21 MR. WOJCZYNSKI: That's right. That 22 will be administered by Manitoba Advance Education 23 and Training in conjunction with a program that is 24 being established and parallel with Gull. There 25 are a number of Aboriginal entities involved in 474 1 the organization and -- of that and also, there is 2 a larger organization being struck that Mr. Adams 3 was referring to, with the federal and provincial 4 governments to obtain funding and training for the 5 whole collection of people. 6 MR. ABRA: ATEC is to administer the 7 fund specifically for the purpose of the Wuskwatim 8 project? 9 MR. WOJCZYNSKI: Effectively, for the 10 NCN portion of that. 11 MR. ABRA: For the NCN? 12 MR. WOJCZYNSKI: And the other 13 1.25 million, the provincial government Advanced 14 Educational Training organization. 15 THE CHAIRMAN: Mr. Abra. 16 MR. ABRA: Yes? 17 THE CHAIRMAN: I see you took a minute 18 break there. May we give you a longer one and 19 call this break time? 20 MR. ABRA: I thought I was on the edge 21 of my seat. Thank you. 22 THE CHAIRMAN: So, we will break here 23 and reconvene at ten after. 24 25 475 1 (PROCEEDINGS RECESSED AT 2:55 P.M. AND 2 RECONVENED AT 3:10 P.M.) 3 4 THE CHAIRMAN: Okay. I trust 5 everybody is now re-charged, including our 6 interrogators. 7 MR. ABRA: Interrogator. 8 THE CHAIRMAN: We will proceed. 9 MR. ABRA: I would like to go briefly 10 to marketing costs, I just have a couple of 11 questions in that regard. Hydro does a 12 significant amount of marketing for the purposes 13 of its export market, I believe. We were assuming 14 that you don't expect any additional incremental 15 expenditures for marketing the power that you hope 16 to have from Wuskwatim for the purposes of export. 17 In other words, there are no marketing costs built 18 into the capital cost expenditures? 19 MR. CORMIE: There is no additional 20 costs. 21 MR. ABRA: Is it contemplated that 22 there may be marketing costs in the future, and 23 assuming that there are, would they go into the 24 partnership as opposed to being a part of Manitoba 25 Hydro's forecast? 476 1 MR. CORMIE: We don't believe that 2 there are any incremental costs associated with 3 taking Wuskwatim energy to market, so there are no 4 additional costs assigned to the Wuskwatim 5 partnership as a result. 6 MR. ABRA: And there won't be in the 7 future? 8 MR. CORMIE: And there won't be in the 9 future. 10 MR. ABRA: Foreign exchange then -- 11 moving right along -- do you have any percentage 12 so far of the cost that would be paid in U.S. 13 dollars or other foreign currency with respect to 14 the development of Wuskwatim? 15 MS. WRAY: That would be a decision to 16 be taken by the, in terms of the debt that might 17 be incurred in U.S. dollars, that would be a 18 decision to be taken by the partnership at the 19 time of commitment. Are you referring -- 20 MR. ABRA: I'm referring to capital 21 costs, Ms. Wray, I'm sorry. 22 MS. WRAY: Are you asking how much of 23 the capital costs would be in U.S. dollars? 24 MR. ABRA: Or other foreign currency, 25 yes? 477 1 MS. WRAY: We will have to get that 2 for you. 3 In the meantime, though, in response 4 to an undertaking earlier today, we have 5 distributed, or are distributing the latest 6 quarterly report. I'm also informed that the 7 depreciation study went to the Manitoba Hydro 8 Board in September 2002. 9 MR. ABRA: Thank you. 10 On the foreign exchange, assuming that 11 there will be some of the expenditures made in 12 foreign currency or U.S. dollars, what impact does 13 the foreign exchange fluctuations have? 14 MS. WRAY: We have done an 15 interrogatory on that, CAC first round 82A, in 16 which we looked at what would happen if we had a 17 five cent deviation in the Canadian/U.S. exchange 18 rate for the period after 2009, and determined 19 that there would be a corresponding increase or 20 decrease in the internal rate of return of 21 .3 percent. 22 MR. ABRA: Is that before or after 23 2009, Ms. Wray? 24 MS. WRAY: This would be a change in 25 the exchange rate that would affect the period 478 1 after 2009. 2 MR. ABRA: Sorry, we are talking again 3 about capital costs, not opposed to the financing 4 statements, Ms. Wray? 5 MS. WRAY: I would have to look and 6 see if we have done a specific sensitivity on 7 that. I don't believe that we have, I think this 8 is the one that we -- 9 MR. ADAMS: To respond to the capital 10 cost component, our estimate of capital cost is in 11 Canadian dollars, installed at site. Some of the 12 components may be made overseas. At the time that 13 we enter into the contract, the price will usually 14 be fixed either in Canadian dollars, or we will 15 enter into some sort of exchange rate hedge to 16 take the exchange rate risk out of it. 17 If the exchange rate changes between 18 now and the time that we tender, that is built 19 into the tender analysis and we will buy the best 20 arrangement that we can. We expect most of the 21 equipment to be manufactured in Canada. 22 MR. ABRA: You do expect most of it -- 23 now, you said that there may be some purchased 24 overseas. Where from, Mr. Adams? 25 MR. ADAMS: Switzerland, Japan, 479 1 Hungary, Czechoslovakia. 2 MR. ABRA: And the quotes are in 3 Canadian dollars when they are tendered? 4 MR. ADAMS: We always purchase in 5 Canadian dollars, yes. Sometimes there is a 6 currency hedge arrangement by the supplier, 7 sometimes it will be by us, but at the time that 8 we issue the purchase order we will be hedged. 9 MR. ABRA: While you are talking about 10 hedging then, the interest rate on debt, does it 11 include hedging costs? 12 MS. WRAY: Are you talking about 13 interest rate on U.S. debt? It would, yes, if 14 there was any U.S. debt, that is as we mentioned 15 the partnership for the time being is just doing 16 its projections assuming Canadian debt because 17 that would be a subsequent decision to move into 18 U.S. debt. It is a very likely decision. 19 MR. ABRA: And what are debt flotation 20 costs? 21 MS. WRAY: These would just be 22 commissions that might be paid upon the issuance 23 of debt. They would most likely be in the ten 24 bases points or below kind of range. 25 MR. ABRA: Would the interest on that 480 1 debt be included -- excuse me, would the interest 2 rate, would the interest rate that you show on 3 debt include the debt flotation costs? 4 MS. WRAY: Yes. Our projections of 5 interest rates include all of that. 6 MR. ABRA: Okay. I would like to go 7 now to the financing costs. I wonder, David, 8 could you put up CEC/MH/NCN/1/NFAAT/32C. 9 Now in looking at that document, what 10 is the difference between the nominal rates and 11 the real rates that are used? 12 MS. WRAY: The difference would be the 13 inflation rate. 14 MR. ABRA: Now you have said in the 15 document the real rates have been calculated using 16 an inflation rate of 2 percent, and yet in our 17 looking at it it doesn't seem to be 2 percent 18 between the nominal rates and the real rates. Do 19 you have an explanation for that? 20 MS. WRAY: The calculation isn't done 21 by adding inflation but rather by dividing by it. 22 MR. ABRA: That is fine. Thank you. 23 THE CHAIRMAN: Mrs. Wray, I didn't 24 understand that answer and I would like some 25 clarification. 481 1 MS. WRAY: Mr. Chairman, just give me 2 a minute and I will figure it out on my 3 calculator. But I think basically if you multiply 4 the inflation of 2 percent times the real rate, 5 then you will get the nominal rate. And the 6 formula is -- so, for example, if we are looking 7 at a real rate of, we will take the 5.34, then if 8 you take 1 plus the 5.34, 1.0534, times 1.02, 9 which is inflation, then you should get 7.45. 10 THE CHAIRMAN: I will let you finish 11 that calculation. 12 MS. WRAY: I did get that calculation, 13 and I'm very relieved. 14 THE CHAIRMAN: Doug, do you want to 15 carry on? 16 MR. ABRA: Thank you. If you go to 17 the book of documents again, please, tab number 6. 18 The last series of pages, the last eight pages, 19 are the projected operating statements for the 20 Wuskwatim partnership. Do you have them, Ms. 21 Wray? 22 MS. WRAY: Yes, I do. 23 MR. ABRA: What rate is used to 24 determine interest cost for the partnership in 25 those financial statements? 482 1 MS. WRAY: I believe it is 2 7.45 percent. There was a period of time where we 3 were using 7.35 percent, but I think that was -- 4 that succeeded the April submission. 5 MR. ABRA: Does it vary from year to 6 year? 7 MS. WRAY: Yes, we update our economic 8 outlook every year. We take a look at what the 9 forecasts are by a number of economic agencies, 10 and we do our own analysis and I think in -- 11 between this forecast and the successive one there 12 was a very small lowering of the long term 13 interest rate. 14 MR. ABRA: When you prepare these 15 financing statements, is the same rate of 16 7.45 percent used for each year? 17 MS. WRAY: In the early years it is a 18 little bit less than that. 19 MR. ABRA: When you say the early 20 years, which years do you mean? 21 MS. WRAY: Well, the current year is 22 2003, but once we get out, I can look it up for 23 you, but once we get out beyond the first few 24 years it stablizes, and so the 7.45 would apply to 25 most of the years of the forecast. 483 1 MR. ABRA: And does that change in 2 future years then, or is this a constant? 3 MS. WRAY: The 7.45 is used for the 4 duration of the forecast period once we reach that 5 level. 6 MR. ABRA: But if the -- are the 7 forecasts redone each year, though? 8 MS. WRAY: Every year we take a look 9 at our outlook and we update our, for instance, 10 our financial forecast. 11 MR. ABRA: So those numbers might 12 change then for future years if you are doing a 13 forecast again next year, for example? 14 MS. WRAY: They could. Inflation in 15 our last number of forecasts has remained at about 16 the 2 percent level, but there have been changes 17 in interest rates, they have been coming down, I 18 should say they have been coming down mainly on 19 the short term. In terms of the long term outlook 20 they haven't changed very much. 21 MR. ABRA: What rate is used to 22 determine the interest costs to NCN? 23 MS. WRAY: Well, there is two aspects. 24 One is the interest rate to the partnership and 25 that is at the same rate as in these financial 484 1 statements here. 2 MR. ABRA: The 7.45? 3 MS. WRAY: Yes. In terms of the loans 4 to NCN, the equity loans, for the first ten years 5 it would be the 7.45 plus one percent, and after 6 the first ten years that the plant is in service 7 would then be 7.45 plus 3 percent. 8 MR. ABRA: The partnership financial 9 statements that you have before you, they only 10 include financing for the partnership, it is not 11 for Manitoba Hydro and NCN respectively. 12 MS. WRAY: When I look at attachment 13 7, these are in fact Manitoba Hydro financial 14 statements. They are not for the partnership. 15 They include -- 16 MR. ABRA: At the back, sorry. Go to 17 the last page and move forward about eight pages 18 and they are all entitled "Projective Operating 19 Statement Wuskwatim Partnership". Tables 25, 26, 20 27, 28. 21 MS. WRAY: I have a table 24 followed 22 by a table 27, but the one marked 27 is for the 23 partnership. 24 MR. ABRA: Yes. But it is only 25 financing costs for the partnership that are 485 1 included in there? 2 MS. WRAY: Yes, the financing costs 3 for Manitoba Hydro are included on the earlier 4 tables. So this would represent the 75 percent 5 debt that is being lent to the partnership by 6 Manitoba Hydro. 7 MR. ABRA: And it is my understanding 8 there are no financing costs in capital or 9 production cost estimates as far as the 10 partnership statements are concerned? 11 MS. WRAY: I missed the first part of 12 that question? 13 MR. ABRA: I'm sorry, I was looking at 14 the wrong statement. If you look at the earlier 15 ones related to Hydro, as you were talking about 16 the financing requirements statements, now the 17 sinking fund administration fee of .075 percent, 18 who is that paid to? 19 MS. WRAY: To the province. 20 MR. ABRA: And where has it been 21 reflected in costs? 22 MS. WRAY: It would be reflected as 23 part of the cost of financing. In terms of the 24 financing requirements statements it is embedded 25 in net income, it would be part of the expenses 486 1 that we give to our top line of net income. 2 MR. ABRA: So, it is in the finance 3 expense? 4 MS. WRAY: Yes. 5 MR. ABRA: And that finance expense, 6 those are principal payments and they don't 7 include interest, or do they? 8 MS. WRAY: Finance expense is -- just 9 applies to interest, it is not capitalized, in 10 terms of the finance expense that appears on an 11 income statement. 12 MR. ABRA: David, I wonder if you 13 could put up, please, CEC/MH/NCN I - NFAAT 41c? 14 Can you see that document, Ms. Wray? 15 MS. WRAY: Yes. 16 MR. ABRA: The figures in there are 17 just principal and don't include interest? 18 MS. WRAY: There is no -- 19 MR. ABRA: Sorry -- are the figures 20 there the interest on debt for the partnership, 21 I'm sorry, I misspoke. 22 MS. WRAY: Yes, that's correct. 23 MR. ABRA: I would like to go briefly 24 to the payments to the Province of Manitoba. 25 Could you put up CEC/MH/NCN I - NFAAT 35a? 487 1 Now, this was prepared in response to 2 an information request. I wonder if you could 3 explain the Provincial costs or payments from the 4 purposes of this chart, Ms. Wray? Did you prepare 5 this particular graph, or was it done at your 6 request? 7 MS. WRAY: It was done under my 8 direction. 9 MR. ABRA: I wonder if you could 10 explain it to the members of the panel. please? 11 MS. WRAY: We were asked I think to 12 compare the payments that would be made to 13 government under a scenario in which Wuskwatim 14 comes into service in 2019 versus coming into 15 service in 2020. The first column deals with the 16 incremental Provincial guarantee fee. This is a 17 fee of 95 bases points that Manitoba Hydro pays on 18 its debt balance of the preceding year. And you 19 can see in this chart that for the first, up to 20 2019 there is more, there is more Provincial 21 guarantee fee paid. Thereafter there is less. 22 This reflects the fact that in 2020, the case that 23 we are comparing to, Wuskwatim would at that point 24 be coming into service then, incurring higher 25 debt, and therefore at that point there is less 488 1 being paid to the Government than would have been 2 the case under a 2020 Wuskwatim scenario. 3 There are similar kinds of differences 4 derived for water rentals, for capital taxes. 5 Capital taxes is paid on the total capital, which 6 includes debt, so the more debt that you have, the 7 higher capital taxes. But, again, as you see 8 under the capital taxes, if you were to have 9 Wuskwatim come in, in 2020, your debt would be 10 higher, your capital taxes would be higher, so it 11 flips around. 12 The last three columns is exactly the 13 same analysis, except it is under a scenario in 14 which there are high export prices, whereas the 15 first columns are under the scenario where there 16 is low export prices. 17 MR. WOJCZYNSKI: If I could add to 18 that comment, Mr. Chairman? 19 THE CHAIRMAN: Yes. 20 MR. WOJCZYNSKI: We had a major 21 discussion earlier about, with Mr. Mayer about the 22 issue of what happens after 2020. I think this is 23 one small example, or not so small example, of 24 where, having advanced the project, the ratepayers 25 are better off, there are benefits to the 489 1 ratepayers. In these minuses, for instance, on 2 the capital tax, and the guarantee fees, for 3 instance, are examples of that, where after 2020, 4 because the project was advanced, there are lower 5 payments that have to be made by the ratepayers 6 overall in that time frame, just simply in this 7 case because of the advancement, never mind the 8 export revenues or anything. So this is one of 9 those four factors that we talked about earlier 10 this afternoon. 11 MS. WRAY: It doesn't quite show up on 12 the table because it cuts off at 2035, but the 13 incremental minuses would continue on. 14 MR. ABRA: Is there a net benefit to 15 the Province in advancing Wuskwatim? 16 MS. WRAY: Well, we think there is a 17 net benefit to the Province, but if your question 18 is meant to be more narrowly focused on guarantee 19 fees, this would tend to suggest that there will 20 be fewer guarantee fees paid. But, of course, 21 that is not looking at the total picture, which is 22 this will be good for the Province for the variety 23 of reasons that Mr. Wojczynski discussed 24 yesterday. 25 The social benefit cost analysis done 490 1 by Marr Schaffer indicates that the Province will 2 be better off by a large degree because of 3 employment of people who would otherwise be 4 unemployed, increased Provincial taxes and so 5 forth. 6 MR. ABRA: Just looking at the column, 7 incremental Provincial guarantee fee that is shown 8 there, does it not mean that it is to the 9 advantage of the Provincial Government to have 10 Wuskwatim moved forward in timing? 11 MS. WRAY: I can't imagine that the 12 Province would look at it in such a narrow 13 perspective. If you just look at the first column 14 and if you recognize that the "debt cremental" 15 numbers go on beyond 2035, that would be true 16 within that narrow context. 17 MR. ABRA: What is the present 18 Provincial guarantee fees, .95 percent? 19 MS. WRAY: Yes. 20 MR. ABRA: And it has gone up 21 significantly, has it, in the last few years? 22 MS. WRAY: It hasn't gone up in the 23 last couple of years. It did go up a few years 24 ago, yes. 25 MR. ABRA: From what, ma'am -- over 491 1 the past ten years, can you give us some 2 historical -- 3 MS. WRAY: I used to know that, but I 4 haven't looked at it for so long, I would have to 5 get that for you. 6 MR. ABRA: It has been .95 percent for 7 a couple of years now, has it? 8 MS. WRAY: Yes, for a few years, I 9 think. 10 MR. ABRA: You will get us the 11 history? 12 MS. WRAY: Yes. 13 14 (UNDERTAKING MH-8: Provide history of 15 Provincial guarantee fees) 16 17 MR. ABRA: Thank you. What is the 18 purpose of the Provincial guarantee fee? It 19 relates to assisting in the cost of borrowing, 20 does it not? 21 MS. WRAY: Yes. Manitoba Hydro 22 generally borrows through the Province and 23 benefits from the fact that the Province has a 24 good credit rating that enables rates much lower 25 than if Manitoba Hydro were a stand-alone utility. 492 1 MR. MAYER: And the Province 2 guarantees the debt, doesn't it? 3 MS. WRAY: Yes, it does. I'm told 4 that it doesn't actually need to guarantee it when 5 it is issuing it on our behalf, but that is the 6 net result. 7 MR. ABRA: Has Hydro ever looked into 8 what rate it could get without the Province's 9 guarantee? 10 MS. WRAY: Yes, I think we have looked 11 at that in past Public Utility Board hearings, and 12 I don't have the numbers at the front of my mind, 13 but it would definitely be the case that we would 14 be paying more if we were borrowing on our own, 15 because we would most likely be rated as a triple 16 B utility, whereas the Province has an A high, I 17 believe. 18 MR. ABRA: What is your present water 19 rental rate to the Province -- or from the 20 Province, excuse me? 21 MS. WRAY: It is $3 something, $3.41 22 per megawatt hour. 23 MR. ABRA: 3.41 or 3.341? 24 MS. WRAY: $3.41. 25 MR. ABRA: Okay. Per megawatt hour? 493 1 MS. WRAY: Yes. 2 MR. ABRA: And it is that rate that 3 has been used in all of your current estimates of 4 cost? 5 MS. WRAY: Yes, it has. 6 MR. ABRA: Now that rate has also gone 7 up over the last number of years, has it not -- or 8 has it? 9 MS. WRAY: Again, that hasn't changed 10 for quite a few years. 11 MR. CORMIE: That rate was changed 12 several years ago. 13 MR. ABRA: What is several, Mr. 14 Cormie? 15 MR. CORMIE: I think it is two years 16 ago. 17 MR. ABRA: And do you know what the 18 history is over the past ten years? 19 MR. CORMIE: I know it has changed, I 20 don't have the exact numbers. 21 MR. ABRA: You can get that for us? 22 MR. CORMIE: We can get those for you, 23 yes. 24 25 (UNDERTAKING # MH-9: Provide history of water 494 1 rental rate) 2 3 MR. ABRA: Have these increases been 4 taken into consideration at all in your cost 5 estimates, the past increases? 6 MR. WOJCZYNSKI: In our economic 7 evaluations, we assume they go up with the rate of 8 inflation. In the financial evaluations the 9 standard procedure is we keep them constant in 10 nominal terms. 11 MR. ABRA: You have always done that 12 for the purpose of forecasting finance, as opposed 13 to economics? 14 MR. WOJCZYNSKI: We have always done 15 these two different approaches, yes. 16 MR. ABRA: Okay. What does the term 17 "full absorption costing" mean? 18 MS. WRAY: It means that if you take 19 what we call an activity rate, which is a rate 20 that is applied to, for a hour of labour, that 21 rate would reflect not just the cost of the 22 person's wage, but also the indirect costs that 23 would be associated with the -- direct and 24 indirect costs that would be associated with that 25 hour of labour. In addition to that, there would 495 1 be an "adder" for overhead. So full absorption 2 costing is designed to pick up the total share of 3 costs applicable to that one hour of labour. 4 It could, by the way, be something 5 other than an hour of labour that would be the 6 driving force, it might be done on a space, square 7 footage kind of basis, if it is that kind of 8 calculation. 9 MR. ABRA: And you are going to use 10 full absorption costing for the purposes of the 11 Wuskwatim project, as you do for -- 12 MS. WRAY: Yes, our costs would be 13 recovered on a full absorption basis. 14 MR. ABRA: David, could you put up 15 CAC/MSOS/NCN I - NFAAT 1c, please? Over to the 16 next page -- sorry, the second page of that. 17 There you go. 18 Now, the capital costs shown there, do 19 they reflect the sunk costs after April 1st of 20 2002? 21 MS. WRAY: I'm just trying to find the 22 context of the question, but are these the costs 23 for the partnership? 24 MR. ABRA: It was in response to a 25 question from CAC -- I will ask Mr. Williams' 496 1 question for him. Please outline the accounting 2 treatment for that portion of the cost funded by 3 Manitoba Hydro and provide a schedule setting out 4 the past annual balances and charges to 5 operations, the period up to March 31,2002? Does 6 that help you? 7 MS. WRAY: Could you give me the 8 reference again I will try and get a hard copy in 9 front of me. 10 MR. ABRA: It is CAC/MSOS/MH/NCN I - 11 NFAAT 1c? 12 MS. WRAY: Your question related to 13 the costs as at April 1, 2002. That is the date 14 at which costs would start to be capitalized. 15 MR. ABRA: What we wanted to know is 16 whether or not -- that the capital costs shown 17 there reflect the sunk costs after April 1 of 18 2002? 19 MS. WRAY: The table that I have in 20 front of me only goes to 2002. The sunk costs 21 would be the first column, $48.1 million, and the 22 unamortized balance of those costs would be 23 32.1 million. 24 MR. ABRA: But are there sunk costs in 25 the capital costs contained in this document? 497 1 MS. WRAY: Sunken as much as they have 2 been expended, yes. But for purposes of the 3 financial evaluations, we don't exclude them in 4 the way that they are done in the economics. 5 MR. ABRA: But with respect to the 6 capital costs, the previous tables that we have 7 referred to under tab 3, where you had a column 8 for sunk costs that we discussed previously, what 9 we are asking is, are the sunk costs that are 10 shown on the document up on the screen separate 11 and apart from the sunk costs that are shown in 12 the tables under tab 3, or are they included? 13 MS. WRAY: I think they are different, 14 because the ones in the tables that you alluded to 15 earlier under tab 3 are perspective costs. They 16 are for 2002/03 and on, whereas these costs in 17 CAC/MSOS - NFAAT 1c are up to and including 18 2001/02. 19 MR. ABRA: Okay. Is there any reason 20 they weren't included in the estimates then for 21 the future? 22 MS. WRAY: Which estimates are you 23 referring to? 24 MR. ABRA: Why then did you start at 25 2002/2003 if there are sunk costs before then with 498 1 respect to the tables under tab 3? 2 MS. WRAY: In the economic analysis 3 sunk costs are excluded. So the purpose of the 4 tables under tab 3 were to get to a total adjusted 5 estimate after taking out sunk costs, which in 6 this particular case are perspective sunk costs. 7 These are costs that we have committed to and we 8 would have to proceed with whether or not 9 Wuskwatim goes ahead in 2009 or 2010. So the 10 purpose of tab 3 was to arrive at a number after 11 sunk costs. So there would have been no purpose 12 in having a column which you just had to simply 13 remove again. 14 MR. ABRA: Now, the sunk costs that 15 are shown on the tables -- that is fine. Sorry, 16 Ms. Wray. 17 I'm generally finished, Mr. Chairman, 18 with the area of capital costs -- which may please 19 you. I don't know whether the members of the 20 panel have any questions in that regard? 21 MR. MAYER: Not me. 22 MR. ABRA: I can't understand why. 23 THE CHAIRMAN: I just heard everybody 24 say "pass." 25 MR. ABRA: I would like to go to the 499 1 area of alternatives now, please. 2 THE CHAIRMAN: Mr. Mazur. 3 MR. MAZUR: Mr. Chairman, I wonder if 4 I might bother Mr. Abra to go back. I was having 5 trouble finding the reference on the development 6 fund, the interrogatory. Is there any way that 7 you can -- 8 MR. ABRA: Sorry? 9 MR. MAZUR: I was having trouble 10 finding the reference on the development fund 11 regarding the interrogatory that you referred to. 12 Can you just check that for me? 13 MR. ABRA: When did I refer to it, 14 Mr. Mazur? What are you looking for, sorry? 15 MR. MAZUR: You referenced, I believe 16 it was 7.4 million number in -- I believe you are 17 wanting confirmation as to what the level 18 increased to? 19 MR. ABRA: What was it I told you that 20 I wanted? I assume you are asking me from an 21 undertaking, are you not? 22 MR. MAZUR: That's right. We were to 23 confirm the value of the development fund. You 24 had referred to an increase from, I believe 5.9 to 25 7.8 for the transmission line development fund. 500 1 MR. ABRA: Yes, there is CAC/MH/NCN I 2 - NFAAT 9a, and then there is also CAC/MSOS/MH/NCN 3 I - NFAAT 13d, and CAC/MSOS II 9a. 4 MR. MAZUR: Can I get you to repeat 5 them again? I can't write that fast. Fine, thank 6 you very much. 7 MR. ABRA: You do have -- somebody has 8 got them recorded? 9 MR. MAZUR: Yes. 10 MR. ABRA: Okay. That is what you 11 wanted, sir? Thank you. 12 In the issue of alternatives -- there 13 is two different areas we are going to be dealing 14 with. By alternatives we are referring to 15 Conawapa, Gull and/or Notigi, in place of 16 Wuskwatim or in addition to Wuskwatim. And then 17 of course there are the other alternatives that 18 there has been evidence of with respect to, for 19 example, demand side management or Power Smart, as 20 you call it, wind, other forms of generation, and 21 non-utility generation and so on. 22 Now, firstly, in your original filing 23 for NFAAT, chapter 4, under the title resource 24 options, you referred to an initial screening of 25 resource options, and you indicated that in your 501 1 examination you did the benefits of various 2 options were considered in relationship to their 3 costs on a fully comparable and consistent basis. 4 How do you do that initial screening? 5 MR. WOJCZYNSKI: You are referring to 6 all of the resources, not just the DSM? 7 MR. ABRA: That's right. All of them, 8 that's right. 9 MR. WOJCZYNSKI: So, what we do, and 10 we are referring to figure 4.5 here in the 11 original submission, which is the comparison of 12 levelized costs. So what we do in an initial 13 screening, we don't do sequence analysis, we just 14 take project by project, and for each project we 15 get our best estimate of what are the capital 16 costs going to be for building this project, and 17 what are the operating and maintenance costs, 18 transmission costs, the costs that are very 19 project specific? And then we take, and we do 20 that on a lifecycle basis from -- some projects 21 might have a 20 year life, some have a 67 year 22 life. We go over the whole life of the project, 23 determine all of the capital operating and 24 maintenance costs, transmission costs, in the case 25 of thermal options, the fuel costs, coal or 502 1 natural gas, for example. 2 MR. ABRA: Excuse me for interrupting 3 you. Could you put up 4.5, please? It is one 4 that I identified for you from chapter 4. Page 36 5 of 41 from chapter 4, it is figure 4.5. 6 MR. WOJCZYNSKI: So we take all of the 7 costs over the life of each particular technology, 8 and then -- and we include, for instance, on the 9 Hydro we include the water rentals, we include 10 mitigation compensation. And then we determine 11 for each one of those technologies, how much 12 energy will this project put out. And then we, on 13 an net present value basis, we average these out 14 over the life of the facility to determine a sense 15 per kilowatt hour, total energy cost. When I say 16 total energy cost, I mean all of the fixed costs 17 and variable costs all mixed together. So that 18 takes all of the costs of the project on a cents 19 per kilowatt hour basis. 20 When we say we are going to do the 21 screening, we use this as the first cut to say, 22 well, out of all of the possible options that you 23 could look at, what are the ones that are worth 24 spending more time looking at because they are in 25 the lower half or lower third or whatever of the 503 1 cost range? And so that is one part of the 2 screening exercise. 3 Another part of the screening exercise 4 is, how feasible or viable are these technologies 5 say in Manitoba, rather than generically in the 6 world? And we look at, at a screening level, 7 environmental features as well, risk features, but 8 only at an initial level. We don't go into as 9 much detail as we would in the full scale 10 evaluations that we do later on in the submission. 11 MR. ABRA: So is the levelized cost 12 basically what you consider then in that initial 13 screening? 14 MR. WOJCZYNSKI: Yes, it is, to deal 15 with the cost side of it. We do, when we do the 16 screening, consider other factors, environmental 17 and risk are two examples of that as well. 18 MR. ABRA: And what do you do for them 19 then, as far as that initial screening? 20 MR. WOJCZYNSKI: When we do the 21 screening, we take general information that is 22 available on certain technologies, like natural 23 gas, or DSM, or wind, and we compare them against 24 each other. And in the case of the hydro, we 25 compare the environmental effects against the 504 1 hydro. But we don't obviously go into the level 2 of detail that we do for an EIS. So we just do it 3 at a more generic level. 4 And the risks, as I indicated in our 5 presentation yesterday, an example of where we 6 look at the risks would be on the natural gas 7 side. We are intense -- we intensely follow the 8 whole industry trends and industry literature, 9 industry conferences, discussions with our peers, 10 and so we are aware of the experiences in other 11 jurisdictions. And for instance, on the natural 12 gas side, we and others would be concerned about 13 the gas price spikes, if you were to count on 14 these for energy in every year. For instance, one 15 of the reasons -- nuclear, we don't have in there 16 is because of the risks that are associated with 17 nuclear. We screened it out before we even got to 18 the screening table. 19 MR. ABRA: Okay. Now, in that same 20 document, the first page, lines 18 to 21, you 21 indicated that in the mid '90's you identified 16 22 sites in Manitoba for potential development of 23 future hydroelectric generating stations. 16, of 24 course, has since been reduced. How did you -- 25 how were those potential sites originally 505 1 identified, the 16 that you referred to? 2 MR. WOJCZYNSKI: Those 16 sites were 3 identified through information that had broadly 4 been available about waterways and their elevation 5 drops, and we had some very high level conceptual 6 information available to develop some initial 7 estimates of the size, of the potential, and what 8 the cost might be. And so when we do the 9 screening we look at those and pursue the ones 10 that look more attractive to get better 11 information and do a more detailed study. In 12 certain cases we don't do any more work. 13 The best example is the three sites 14 there on heritage rivers, we are not doing any 15 work on those. We assume that those are not going 16 to be developed and are not doing any work on 17 those at this time. There are others that are on 18 our list that we are not actively pursuing at this 19 time either. 20 MR. ABRA: You eventually came down 21 to -- I won't ask what the 16 were, but you 22 identified Wuskwatim, Gull, Conawapa and Notigi as 23 being the four most desirable; is that fair? 24 MR. WOJCZYNSKI: Yes. 25 MR. ABRA: Did you use the criteria 506 1 that you have just described as determining those 2 four as being the most attractive? 3 MR. WOJCZYNSKI: Yes. 4 MR. ABRA: Now, when you were doing a 5 analysis of Wuskwatim, you did do an analysis of 6 the greenhouse gas effects, the sulfur dioxide 7 effects, the nitrogen oxide effects, and the 8 specific land areas. And you did that with 9 respect to Wuskwatim. Have you done similar 10 analysis of Gull, or Conawapa, or Notigi, on those 11 particular issues of GHG, socks, knocks and land 12 use, to use the slang? 13 MR. WOJCZYNSKI: We didn't do the kind 14 of detailed assessment for the other Hydro 15 projects as we did for Wuskwatim. We do know what 16 the flooding, for instance, would be, though, and 17 that is a significant component of the overall 18 picture. So we have that level of information, 19 and that is the kind -- the flooding area would be 20 one that we would use in our screening. But 21 determining the lifecycle socks and knocks is not 22 something that we use at a screening level. It is 23 something that we would use at a more detailed 24 level such as finalizing what we go with, and that 25 is why it is in the submission. 507 1 MR. ABRA: Do you have the records of 2 the flooding areas that you said were significant 3 with respect to Conawapa, Gull, and Notigi? 4 MR. WOJCZYNSKI: I don't know if I 5 said they were significant but -- 6 MR. ABRA: I may be putting words in 7 your mouth. 8 MR. WOJCZYNSKI: Yes, for Wuskwatim in 9 square kilometres, we already indicated it is 10 37 hectares or .4 square kilometres. For Gull, 11 Keeyask, and this is a preliminary design, we are 12 still working on the conceptual design and working 13 with the four First Nations in the area, but our 14 preliminary numbers are 43 square kilometres, 15 Conawapa, in the order of 5 square kilometres, and 16 Notigi would be zero. 17 MR. ABRA: When you did these 18 comparisons, did you consider Power Smart and SSE, 19 supply sale enhancement, at all in doing the 20 comparisons with Conawapa, because you have done 21 those analysis for them, and how they tie 22 together? 23 MR. WOJCZYNSKI: When we did the 24 figure 4.5 screening comparison, those kind of 25 measures were considered, and they were the first 508 1 measure on the table, just referred to as DSM -- 2 so those are all captured by DSM. 3 MR. ABRA: Okay. It may seem like 4 kind of a simplistic question, sir, but do GHG, 5 socks, knocks and land use have any impact on DSM 6 or SSE at all? 7 MR. WOJCZYNSKI: DSM measures can have 8 lifecycle emissions because of the materials that 9 are used. If you are going to be, for instance, 10 building thicker walls in homes to put more 11 insulation in, you need some additional resources 12 to do that, and the manufacture or harvesting of 13 the materials to do that do have, for instance, 14 some impacts. But we haven't done a specific 15 analysis ourself. We generally expect that the 16 kind of impacts due to the DSM measures would be 17 very low on a lifecycle basis, and would be 18 comparable to the wind and the DSM that we had in 19 the figures. 20 MR. ABRA: Did you do -- you have done 21 a significant EIS study, as your EIS witnesses 22 testified to yesterday, and of course we will be 23 getting into later. Did you do any kind of 24 comparable EIS study with respect to any of the 25 others, in particular Notigi, Conawapa, or Gull, 509 1 as significant as you have done for Wuskwatim, or 2 have you done any kind of EIS study with respect 3 to those particular potential projects? 4 MR. WOJCZYNSKI: Conawapa, we had back 5 in 1990/92 been engaged in a significant major 6 environmental assessment. But when Ontario was 7 hit with a major recession, they cancelled the 8 contract, and we cancelled working on the project 9 at that time, so we stopped the assessment work 10 that was going on. We had done a lot of 11 information at that time. 12 More currently for the Gull project, 13 we are engaged in an extensive Environmental 14 Assessment study. We have been for a number of 15 years. As a matter of fact, last year, 2003 16 summer, was the main field studies for the Gull 17 Environmental Assessment. And so when Ms. Wray 18 mentioned earlier today about the quantums for the 19 studies for Gull, one of the reasons is because we 20 are doing so much work on it, and have done a lot 21 of work, but we don't have a study prepared yet. 22 Those are the field studies and other related 23 studies. They are not in a documented form yet. 24 For Conawapa, we recently made the 25 decision in the last couple of months to restart 510 1 the Conawapa project. We have sent out official 2 notification to the First Nations, who we have 3 agreements with, that we are planning to restart 4 the Conawapa studies and that we will be engaging 5 in consultations and discussions with them. So we 6 are just starting those up. 7 For Notigi, we aren't actively 8 performing studies at this time. 9 MR. ABRA: It is trite to say, I'm 10 sure, that when you are doing an analysis with 11 respect to hydroelectric generation, as you've 12 testified and everyone has testified to in the 13 last couple of days, you take a look at both the 14 financial and the environmental criteria. Do you 15 put priority on either one over the other? 16 MR. WOJCZYNSKI: We give equal 17 priority to all of the corporate objectives, as 18 per a round 1 interrogatory. 19 MR. ABRA: Looking at 4.5 behind you, 20 or you may have it in front of you -- it was in 21 the book yesterday, of course, that you prepared 22 as well. You did indicate that you compare the 23 levelized cost for each of the various projects 24 that are shown on the screen. Did the levelized 25 costs analysis include the cost of firming, 511 1 shaping, and regulation that we talked about 2 earlier today? 3 MR. WOJCZYNSKI: No. 4 MR. ABRA: What is the reason for 5 that, sir? 6 MR. WOJCZYNSKI: Because those costs 7 are system costs. As indicated, what we do when 8 we do the screening costs, we just look at the 9 project specific parameters that we can tie to the 10 project, and then we have to do a full scale 11 evaluation using our big models like the SPLASH 12 model, and that is where we capture the firming 13 costs, because that is -- how does the system 14 respond to adding that resource? And that is not 15 a project specific cost, that is a system impact 16 to take that unfirm source and make it firm, or to 17 take the non-dispatchable resource and dispatch 18 it. It is the interaction of the system with the 19 project. 20 MR. ABRA: What about transmission 21 tariffs? 22 MR. WOJCZYNSKI: The incremental 23 transmission costs for these resources are 24 included. The tariffs are one means to capture 25 that on a day-to-day basis once projects are 512 1 developed. But when we look at these, we look at 2 the incremental transmission that would be 3 required for each of them. So we would do it more 4 directly than using a tariff. 5 Maybe I should expand on that 6 slightly. The tariff would come more into play 7 once you took the project and you put it in the 8 system and you were trying to export the power, 9 that is one area, if there was a tariff to be 10 considered, it would be. Here all we are doing is 11 saying, what does the project cost? We are not 12 trying to say, if you took the project and tried 13 to export it, what would the costs of that be? 14 That is where you need a detailed evaluation. 15 MR. ABRA: Just run through a very 16 quick list -- insurance costs are not included 17 then in your comparison of levelized costs? 18 MR. WOJCZYNSKI: Well, to the degree 19 there would be insurance, there would be in part 20 of the capital, but not as an operating cost, no. 21 MR. ABRA: Taxes at all? 22 MR. WOJCZYNSKI: Capital taxes are 23 included. 24 MR. ABRA: Ongoing capital 25 expenditures? 513 1 MR. WOJCZYNSKI: They would be 2 included. 3 MR. ABRA: All of the financing costs 4 such as Provincial guarantee and so on? 5 MR. WOJCZYNSKI: In effect, they are 6 included by the fact that we use a 10 percent 7 discount rate to do the calculations here. And 8 implicit in that is that you would have to cover 9 your financing costs and have a cover, a weighted 10 average cost of capital of 10 percent, which would 11 provide you with much more than just covering the 12 financing cost and the debt guarantee fee, it 13 would be much more than that. 14 MR. ABRA: And that would include 15 interest both on construction and on production as 16 well? 17 MR. WOJCZYNSKI: That would all be in 18 effect included, yes. 19 MR. ABRA: What about sinking fund 20 costs? 21 MR. WOJCZYNSKI: In effect, yes. 22 MR. ABRA: Water rental fees? 23 MR. WOJCZYNSKI: Yes. 24 MR. ABRA: Import costs? 25 MR. WOJCZYNSKI: No, that is again a 514 1 system cost that comes in when you are trying to 2 export the product rather than cost of the project 3 per se. 4 MR. ABRA: Compensation of each of the 5 respective ones I assume would be considered, 6 possible cost of compensation? 7 MR. WOJCZYNSKI: Compensation for 8 adverse effects is included. 9 MR. ABRA: The transmission 10 development fund? 11 MR. WOJCZYNSKI: That would be 12 included. 13 MR. ABRA: Pre-project training fund? 14 MR. WOJCZYNSKI: Yes. 15 MR. ABRA: Incremental marketing 16 costs? 17 MR. WOJCZYNSKI: Well, there really 18 aren't any. If there were -- and they are system 19 costs anyways, so they are not included in here 20 because -- 21 MR. ABRA: They are not included in 22 the levelized cost of each of the respective 23 projects? 24 MR. WOJCZYNSKI: No, they are not. 25 MR. MAYER: Transmission development 515 1 fund -- in order to build Conawapa or Gull you 2 have to build Bipole III. I recall from I think 3 the status update hearings that you wanted to 4 call -- and I forget whether we let you do it or 5 not -- wanted to call the Bipole lines and Dorsey 6 as generation and not transmission. I think we 7 did permit that, or I think the order did permit 8 that. So, the major transmission costs, I'm 9 assuming, that would come out of Gull and Conawapa 10 because of their relative proximity to Kettle, 11 would be the Bipole III line. Would there be any, 12 in light of the way you wanted to categorize the 13 Bipole line, would there be any money be paid into 14 the transmission development fund as a result of 15 construction of Bipole III? 16 MR. ADAMS: That is an issue we are 17 still looking at. I suspect that once we have 18 opened the door on Wuskwatim, it may be very hard 19 to close it again. But that is still a matter 20 that is at discussion with the board. 21 MR. ABRA: Just for the record, 22 although most of the people in the room are 23 probably aware of it, what is Bipole III? I don't 24 think it was referred to yesterday, although I may 25 have missed it. 516 1 MR. ADAMS: We have two high voltage 2 DC -- DC being direct current transmission lines 3 from roughly the Gillam area to the Winnipeg area 4 known as Bipole I and Bipole II. Bipole III, in 5 its entirety, will consist of another converter 6 station in the north, another inverter station in 7 the south -- it is the same thing upside down -- 8 and another transmission line connecting them. 9 Our present plan is to build the transmission line 10 only, which we call Bipole III transmission line 11 and at some future date we will proceed to build 12 the converter station and the inverter station, at 13 the very latest when we build Gull or Conawapa, 14 and possibly sooner. 15 MR. ABRA: It is contemplated to go 16 down the east side of Lake Winnipeg, as opposed to 17 the west side where Bipole I and II go. Am I 18 correct? 19 MR. ADAMS: That is our preference at 20 this point, yes. 21 MR. ABRA: It will be a third 22 transition line, and in all likelihood will be 23 removed geographically from where the other two 24 run side-by-side? 25 MR. ADAMS: We haven't finally located 517 1 it, but, yes, our preference at this point is, it 2 is a third transmission line and we would like to 3 see significant geographic displacement from the 4 other two lines. 5 MR. ABRA: Okay. 6 MR. MAYER: Your original submission 7 says you are committed to building Bipole III? 8 MR. ADAMS: It is in our financial 9 plan, and as soon as we can get through the 10 licencing process for Bipole III, we will go ahead 11 with that. 12 MR. ABRA: It is not included at all 13 in the cost estimates with respect to Wuskwatim? 14 MR. ADAMS: No, it is completely 15 independent of Wuskwatim, and Wuskwatim is 16 completely independent -- 17 MR. ABRA: Are they included with 18 respect to the -- the analysis of the levelized 19 costs that Mr. Wojczynski was referring to 20 previously, is there any reference to Bipole III 21 in the levelized costs for Conawapa, Notigi and 22 Gull? 23 MR. WOJCZYNSKI: First of all, Notigi 24 would not use the DC, it would use AC in a similar 25 fashion to Wuskwatim. 518 1 For Gull and Conawapa, we don't have 2 the capital costs for the Bipole III in there, for 3 the line, because we assume that the line is going 4 to be built regardless. But we do have the costs 5 in for the converter stations, which would not, 6 which are not in our plans right now. You can 7 build the line and put it to good use without 8 actually building the converters. But when you 9 build the generating station, you also have to 10 build the converters. So they are included in the 11 costs for Gull and Conawapa. 12 MR. ABRA: And they would have been 13 used then for the purpose of comparing the 14 levelized cost for Gull and Conawapa to Wuskwatim? 15 MR. WOJCZYNSKI: Yes. 16 MR. ABRA: Just completing my list, 17 Mr. Wojczynski, related to what was included in 18 the levelized costs in comparison for Wuskwatim, 19 Conawapa and Gull, would hedging costs have been 20 included? 21 MR. WOJCZYNSKI: Yes, to the degree it 22 is built into the interest, and we have recovered 23 much more than the interest rate. 24 MR. ABRA: And debt flotation costs 25 and escalation? 519 1 MR. WOJCZYNSKI: To the same way, yes. 2 MR. ABRA: Over what time frame are 3 these levelized costs done for the purposes of the 4 comparison that you have talked about? 5 MR. WOJCZYNSKI: Over the life of each 6 facility. For example, if you have got a Hydro 7 project with a 67 year life, we do the levelizing 8 essentially over the full 67 years. And one of 9 the complexities is that the electrical equipment 10 for instance, the electrical transmission station 11 equipment only lasts 35 years. So when we 12 determine the lifecycle levelized costs, after 35 13 years we rebuild the electrical transmission, we 14 redo it to get the full 70 year life to make the 15 lifecycle costs work. Where we have a shorter 16 life facility, like a gas turbine or wind turbine, 17 for instance, it is more like 20 or 25 years, then 18 we use that shorter life for those facilities. 19 MR. ABRA: The levelized costs 20 analysis with respect to the three Hydro 21 generation projects, I assume that they would have 22 been approximately the same, would they, or would 23 they not? 24 MR. WOJCZYNSKI: Sorry, the life or 25 the lifecycle costs? 520 1 MR. ABRA: You have said that you 2 based the levelized costs on the anticipated life 3 of each of the different components, or what the 4 different alternatives were. With respect to 5 Conawapa, Gull, and Wuskwatim, is the lifecycle 6 approximately the same, the anticipated lifecycle? 7 MR. WOJCZYNSKI: The life of these 8 would be the same, yes. 9 MR. ABRA: And what is the lifecycle 10 then for DSM and wind? 11 MR. WOJCZYNSKI: Wind is 20 years, 12 although in the long run it could be that the life 13 will be longer, but that is what the current 14 technology is. For DSM there are many different 15 lives. I don't know, Lloyd, do you want to answer 16 that? 17 MR. KUCZEK: Yes, the life for -- 18 THE CHAIRMAN: Were you sworn in 19 yesterday? 20 MR. KUCZEK: Yes. The life for DSM 21 options varies considerably, whether it is 22 lighting technologies, they can have shorter life 23 times, or insulation which can be fairly lengthy 24 in terms of years, decades in fact. So there is 25 quite a broad range. You talk about furnaces, 20 521 1 year lives and stuff like that. 2 MR. ABRA: And what about the gas 3 turbines, the combined cycle and the simple cycle? 4 MR. WOJCZYNSKI: 40 years for the 5 simple cycle, and 30 years for the combined cycle. 6 MR. ABRA: And the coal fired steam? 7 MR. WOJCZYNSKI: 30. 8 MR. ABRA: Biomass -- what is biomass, 9 Mr. Wojczynski? 10 THE WITNESS: I sort of skimmed over 11 that a bit yesterday. 12 MR. ABRA: I noticed that. That is 13 the reason I'm asking. 14 MR. WOJCZYNSKI: I thought my 15 presentation was long enough. I don't think that 16 anybody probably disagrees. 17 Biomass, there are different forms of 18 biomass generation, but fundamentally it is where 19 you take biological material and you, through 20 various different processes, convert it into heat, 21 and then use the heat to produce electricity. I 22 mean, the easy way is you can take waste wood from 23 a pump or paper mill, saw mill, and burn it, and 24 produce steam, and then produce heat from a steam 25 generator -- electricity from a steam generator. 522 1 There are other ways that you can do it as well. 2 There is concepts where you have huge farms, tree 3 farms, where you come up with big machinery and 4 just slice everything down, and pop it into a big 5 specialized burner. And you have a large 6 dedicated area that just continuually does that. 7 You can burn waste flax. There is various forms 8 of biomass. 9 MR. ABRA: Old garbage dumps, for 10 example? 11 MR. WOJCZYNSKI: Yes, that would be 12 another form. 13 MR. SARGEANT: What does biomass do to 14 greenhouse gas? 15 MR. WOJCZYNSKI: It depends on the 16 kind of technology that you are using, but we did 17 an assessment of that and it is included in figure 18 4.2. 19 MR. ABRA: Page 18 of yesterday's I 20 think is the one that you are referring to? 21 MR. WOJCZYNSKI: Yes, it is. It is 22 slide 18 of the presentation yesterday, and it is 23 page 30 of the original submission from April of 24 the NFAAT. Anyways, the biomass would have less 25 emissions than the coal or natural gas, but 523 1 significantly more, about 10 times as much as wind 2 and Wuskwatim. 3 MR. ABRA: Now, you testified 4 yesterday as to what an internal rate of return 5 is, and you gave evidence related to Wuskwatim's 6 internal rate of return. Did you do any kind of 7 an internal rate of return analysis, or have you 8 done any internal rate of return analysis with 9 respect to the alternatives to Wuskwatim -- 10 Conawapa, Gull, and the others that are shown in 11 4.5, or any of the others shown in 4.5? 12 MR. WOJCZYNSKI: We don't normally do 13 an IRR when we are doing a screening, but we have 14 done an IRR for some alternatives, the ones that 15 are more prominent. We have submitted in the 16 original, in the filings work we had done prior to 17 this submission, with the IRR where we indicated 18 the IRR for Gull and Conawapa were lower, slightly 19 lower than the IRR for Wuskwatim. And we have 20 submitted IRRs for wind, both in the earlier 21 submission material and also in the rebuttal last 22 Friday. And those IRRs for wind were less than 23 Wuskwatim's IRR as well. 24 MR. ABRA: So you do have IRR 25 calculations then for Gull and Conawapa? 524 1 THE WITNESS: Well, we did an IRR back 2 in December 2001, January -- late December, late 3 2001 -- and I don't recall if we have updated 4 those. But it would not be -- you would get the 5 same conclusion as we did then. And that was -- 6 MR. ABRA: And what was what, sir? 7 THE WITNESS: We can give you the 8 reference, if you like. 9 MR. ABRA: Thank you. 10 MR. WOJCZYNSKI: The reference where 11 that report is contained is PCN/NFAAT round 1, 12 question 2A, and the report that I'm citing is the 13 2002 Wuskwatim business case. PCN/NFAAT round 1, 14 question 2A, response to question 2A, and there 15 were a number of reports submitted in that 16 interrogatory, and one of them was the 2002 17 Wuskwatim business case report. 18 MR. ABRA: Okay. Now, you have 19 indicated that you have done both a levelized cost 20 and an IRR then with respect to a number of the 21 different alternatives. Doing an IRR as opposed 22 to a levelized cost, or doing both of them, have 23 you found that one is more appropriate or 24 acceptable as a means of comparison? 25 MR. WOJCZYNSKI: The IRR -- 525 1 MR. ABRA: Go ahead. 2 MR. WOJCZYNSKI: The IRR is based on a 3 detailed, complex, comprehensive evaluation that 4 has all of the system parameters included. And so 5 it is a much more realistic, and much more 6 reliable, and much more meaningful indicator than 7 the levelized cost one. The reason that we don't 8 do the IRR, the detailed calculation for 9 everything is because it takes a lot of work. 10 MR. ABRA: It is expensive. 11 MR. WOJCZYNSKI: It is expensive and 12 it takes a lot of time and a lot of information. 13 So we start with a more simple calculation, and 14 then for the options that look like they are worth 15 pursuing further, in terms of studying, then we do 16 more detailed evaluations, get more information, 17 spend more time on them. And the culmination of 18 that is the IRR, and then we use the same detailed 19 work as the basis for the financial evaluation 20 that Ms. Wray speaks about. 21 MR. ABRA: Now looking at the 4.5 22 behind you, it would appear that DSM, new hydro, 23 wind, and the combined combustion turbine have the 24 lowest levelized cost at approximately 10 percent 25 or less, or at least at a 10 percent discount 526 1 rate. If the discount rate goes up or down, does 2 that ranking change at all for those particular 3 alternatives? 4 MR. WOJCZYNSKI: Yes, it does. 5 MR. ABRA: Can you explain that? 6 MR. WOJCZYNSKI: Fundamentally, what 7 happens is if you have a lower discount rate 8 compared to a higher discount rate, so the lower 9 the discount rate, the better off our projects 10 with long lives and high initial capital cost. So 11 if you go to a low discount rate, we used to look 12 at things at 3, 4, 5 percent. Back in the 13 Conawapa days, we used a 5 percent real discount 14 rate. But we did our analysis on a somewhat 15 different basis then. But if you go to a lower 16 discount rate, then projects like wind and Hydro 17 look better. If you go to a higher discount rate, 18 lets's say 10 percent, then thermal generation 19 which has less capital costs in the front end but 20 more operating costs in the long term and a 21 shorter life, they look better. If we use a lower 22 discount rate than the 10, you would tend to see 23 the DSM, the hydro, and the wind to look better, 24 and the gas turbines to not look as good. 25 MR. ABRA: Why is 10 percent the right 527 1 discount rate then? 2 MR. WOJCZYNSKI: It is not necessarily 3 the right discount rate to make a decision on. 4 The reason we used it for the screening is that 5 10 percent is the hurdle rate that Manitoba Hydro 6 at least uses for medium risk projects. So we 7 said, some of these projects are going to be less 8 than medium, some might be more, so we will take 9 10 percent as sort of a middle ground. We feel, 10 for instance, for Wuskwatim or wind that we 11 wouldn't need a full 10 percent for the project to 12 proceed, but it was -- we needed to have one 13 discount rate to compare everything on. 14 MR. ABRA: If I could have a moment, 15 Mr. Chairman, please? 16 MS. WRAY: Mr. Chair, while there is 17 this moment available, I have a couple of answers. 18 Mr. Mayer had asked about the 19 insurance that Manitoba Hydro might carry with 20 respect to the breach of a dam. I'm informed that 21 we do have 100 million in general liability 22 insurance for damage to third parties resulting 23 from a dam breach. This would be in circumstances 24 where Manitoba Hydro is deemed to be legally 25 obliged to pay the damages for bodily injury or 528 1 property damage to third parties. There are of 2 course terms and conditions associated with that. 3 And you had, in your hypothetical example you 4 talked about sabotage. These days there are 5 exclusions related to terrorism, so it is a little 6 bit murky as to whether that would apply or not. 7 But up until 2001, we were self-insured with 8 respect to that kind of catastrophe, and now we do 9 have this general ininsurance. 10 MR. MAYER: That is an interesting 11 date. 12 MS. WRAY: I'm not sure which month it 13 was. But I think, in fact, our interest on 14 enterprise risk management preceded September 11. 15 The other question relating to the 16 Provincial guarantee fee. Up to March 31, 1999, 17 there was a Provincial guarantee fee of 18 0.5 percent. From April 1, 2002 on it is 19 0.95 percent, and there were a couple of interim 20 increases in between. 21 We are still looking for the history 22 on the water rental rates. 23 MR. ABRA: When you did your 24 comparison of levelized costs, did you take into 25 consideration sunk costs for any of the 529 1 alternatives? 2 MR. WOJCZYNSKI: There would have been 3 no sunk -- we would have considered no sunk costs. 4 MR. ABRA: Pardon me? 5 MR. WOJCZYNSKI: No sunk costs would 6 have been included. Any sunk costs would have 7 been excluded. 8 MR. ABRA: So you didn't include any 9 sunk costs that may have already been spent with 10 respect to any of the alternatives? 11 MR. WOJCZYNSKI: No, none of them 12 would have been included. 13 MR. ABRA: What about the internal 14 rate of return analysis that you have now done 15 with respect to the alternatives, do they include 16 the sunk costs? 17 MR. WOJCZYNSKI: No, the internal rate 18 of return analysis, neither would have included 19 sunk costs. 20 MR. ABRA: Okay. Dealing Notigi, it 21 already has a dam, does it not? 22 MR. WOJCZYNSKI: Yes. 23 MR. ABRA: And it already has a 24 spillway? 25 MR. WOJCZYNSKI: Yes. 530 1 MR. ABRA: Now, your estimates for 2 bringing Notigi onstream as a generation utility 3 are approximately 700 million. Does that figure 4 include just the -- I shouldn't say just -- but 5 does it include, is that cost for the powerhouse 6 in view of the fact that there is a dam and a 7 spillway, or are the same dam and spillway not 8 usable for the purposes of hydro generation? 9 MR. WOJCZYNSKI: The existing 10 structures there, including the spillway, would be 11 used by the new Notigi arrangement, and the costs 12 for Notigi is relatively high because of the cost 13 of building a powerhouse at that location, and 14 given the head that is available and everything 15 else -- the head meaning the difference in the 16 water levels -- would be relatively high. 17 MR. ABRA: I shouldn't say it is just 18 the cost -- but it is the cost of the powerhouse 19 that you foresee? 20 MR. WOJCZYNSKI: And the transmission, 21 yes. 22 A simple explanation that might be 23 helpful on the Notigi is that we have the same 24 amount of water flowing but about half the head. 25 So that is why we are talking around 100 megawatts 531 1 for Notigi and 200 for Wuskwatim. You have to do 2 essentially the same kind of work, but you only 3 get half the power. So it is a relatively 4 expensive plant on a per unit basis. 5 MR. MAYER: While we are on that 6 subject, you identified Notigi as one of the 7 preferred options. In looking at your levelized 8 cost in your original submission, it is 89 9 something or other per megawatt hour in 2002 10 dollars, compared to 76 for Gull, 67 for Conawapa, 11 66 for Wuskwatim for only 100 megawatts. Why did 12 you consider Notigi before you considered, for 13 example, First Rapids? In accordance with the 14 submission the City of Thompson made in about 15 1985, when they recommended you build, if you are 16 going to build on the Burntwood -- I recall this 17 recommendation specifically -- start at First 18 Rapids, go to Manasan, then to Wuskwatim. Never 19 mind that we had our own ideas as to why you 20 should do it that way, but why have -- First 21 Rapids, for example, why does it not look like a 22 better project than Notigi? 23 MR. WOJCZYNSKI: It may ultimately 24 prove to be a better project. But as I indicated 25 earlier, we don't just strictly look at the 532 1 economics, we also look at other factors, 2 environment being one. And one of the features 3 about Notigi is there are essentially no 4 environmental impacts from building a generation 5 station -- I mean, or Wuskwatim has very, 6 relatively very low environmental impacts, and 7 Notigi is even less because you already have a 8 structure and -- 9 MR. MAYER: You have a forebay. 10 MR. WOJCZYNSKI: Yes, and a forebay 11 and everything, and a road and transmission 12 right-of-way. So, I had said in my presentation 13 it would be hard to find another project that 14 would be as good environmentally, but actually 15 there is one in Manitoba, and that is called 16 Notigi. But its cost is significantly higher. 17 MR. ABRA: David, could you put up 18 figure 4.2 from chapter 4 of the NFAAT submission, 19 page 4 of 41? 20 Now, looking at -- this is, as the 21 diagram says, a comparison, as I refer to it, of 22 the most attractive potential hydroelectric 23 generation sites that we have heard reference to, 24 that being Wuskwatim, Gull, Notigi and Conawapa. 25 If you take a look at the levelized cost for 533 1 Wuskwatim and the levelized cost for Conawapa, 2 they are very close to the same, being 66 for 3 Wuskwatim, 67 for Conawapa. In the event that you 4 develop Conawapa, you get a lot more energy and 5 capacity, do you not? 6 MR. WOJCZYNSKI: Yes, we do. 7 MR. ABRA: And what about -- how is 8 the comparison for flooding with respect to 9 Conawapa? 10 MR. WOJCZYNSKI: As I indicated 11 earlier, there was around five square kilometres 12 of flooding. So on a per unit basis, Conawapa 13 would have slightly more flooding than Wuskwatim, 14 but there wouldn't be a major amount of flooding 15 at Conawapa either. 16 MR. ABRA: Would it not be to Hydro's 17 advantage to wait to see whether a new Ontario 18 contract can be negotiated, and to proceed with 19 Conawapa in view of the significant amount more 20 energy and capacity that you can get from it? 21 MR. ADAMS: I can answer that one 22 many, many ways. There are several reasons why we 23 want to proceed with Wuskwatim. First, we can put 24 it in physically a lot quicker than Conawapa. 25 Secondly, any deal that we arrive at with Ontario 534 1 will not be based specifically on Conawapa, it 2 will be system power. 3 MR. ABRA: Sorry? 4 MR. ADAMS: Based on system power. 5 MR. ABRA: System power? 6 MR. ADAMS: Yes. The sorts of 7 opportunities that we have under discussion with 8 Ontario involve all three of Wuskwatim, Gull, and 9 Conawapa, in sequence. So it is not really 10 either/or. If we go ahead with Ontario, we need 11 all of them. 12 The other thing is, to build Conawapa 13 you do need another export transmission line. 14 Whether it is to Ontario or somewhere else is a 15 second issue. But we simply don't have 16 transmission capacity today to get Conawapa power 17 out of the Province. We do have the transmission 18 capacity to get Wuskwatim out of the Province, and 19 we have the transmission capacity to get Wuskwatim 20 out of the Province as soon as it comes on line. 21 MR. MAYER: Conawapa as well requires 22 Bipole III; right? 23 MR. ADAMS: Either Bipole III or 24 another transmission line into Ontario. 25 MR. MAYER: You could go directly 535 1 across to some place like Moosonee, but I don't 2 think Moosonee is on their grid. So I don't know 3 how far south you would have to go. 4 MR. ADAMS: You would have to get to 5 Sudbury. Eventually you have to get to Sudbury. 6 There is several different ways of getting there. 7 MR. MAYER: I'm assuming, though, that 8 the better plan would be a high voltage 9 transmission line to preserve, or save your energy 10 loss? 11 MR. ADAMS: It would be high voltage, 12 it wouldn't necessarily be DC. 13 MR. MAYER: And your 5 kilometres of 14 flooding, I have been lead to believe that most of 15 that 5 kilometres consists of the pieces of the 16 very high bank of the Nelson River within which 17 the water would mostly stay? Am I correct? 18 MR. ADAMS: You are correct. 19 MR. MAYER: Thank you. 20 MR. ABRA: Mr. Chairman, I notice the 21 hour. Do you want me to go for a while or are you 22 getting worn out, or are members of the Commission 23 getting worn out? 24 THE CHAIRMAN: If you are asking how 25 I'm getting or how we are all getting, the answer 536 1 is probably we are getting worn out, yes. 2 MR. ABRA: Do you wish me to keep 3 going or adjourn for the day? 4 THE CHAIRMAN: We are very close to 5 5:00 o'clock. We could adjourn at this point. 6 MR. ABRA: It would be an appropriate 7 time for me to break. 8 THE CHAIRMAN: I just want to make one 9 comment. I know this is tough going, and maybe 10 dry, but it is of course vital for the reason that 11 we are here. We will carry on tomorrow, but 12 tomorrow is at 1:00 o'clock. And to accommodate, 13 even though this would be breaking with the rhythm 14 of things, if some people are here, or have been 15 here and will continue to be here tomorrow, and 16 cannot be here after tomorrow evening, we will 17 attempt to make arrangements to give them an 18 opportunity to make their presentation at that 19 time. But for that, I ask you to speak to Mr. 20 Grewar, or with Ms. Joyce Mueller at the entrance, 21 one or the other. They will communicate with one 22 another, I am sure. 23 I don't think there is any other 24 comments to be made at this time, but I will chcek 25 with Mr. Grewar to make certain that that is the 537 1 case. 2 No. In that case, have a good 3 evening. I will see you tomorrow afternoon. 4 5 (ADJOURNED AT 4:55 P.M.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24