816 1 MANITOBA CLEAN ENVIRONMENT COMMISSION 2 3 VERBATIM TRANSCRIPT 4 Volume 4 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 8, 2004 22 Radisson Hotel 23 288 Portage Avenue 24 Winnipeg, Manitoba 25 817 1 LIST OF PARTICIPANTS 2 3 Clean Environment Commission: 4 Gerard Lecuyer Chairman 5 Terry Sargeant Member 6 Harvey Nepinak Member 7 Kathi Avery Kinew Member 8 Doug Abra Counsel to Commission 9 Rory Grewar Staff 10 CEC Advisors: 11 Mel Falk 12 Dave Farlinger 13 Jack Scriven 14 Jim Sandison 15 Jean McClellan 16 Brent McLean 17 Kyla Gibson 18 19 Nisichawayasihk Cree Nation: 20 Chief Jerry Primrose 21 Elvis Thomas 22 Campbell MacInnes 23 Ms. Matthews Lemieux 24 25 818 1 LIST OF PARTICIPANTS 2 3 Manitoba Conservation: 4 Larry Strachan 5 6 Manitoba Hydro/NCN: 7 Ed Wojczynski 8 Ken Adams 9 Carolyn Wray 10 Ron Mazur 11 Lloyd Kuczek 12 Cam Osler 13 Stuart Davies 14 David Hicks 15 George Rempel 16 David Cormie 17 18 Community Association of South Indian Lake: 19 Leslie Dysart 20 Merrell-Ann Phare 21 22 CAC/MSOS: 23 Byron Williams 24 Bill Harper 25 819 1 INDEX OF EXHIBITS 2 3 Number Page 4 CASIL 1000: Letter undated from 5 Nisichawayasihk Cree Nation, 6 Chief and Council, re NCN 7 Manitoba Hydro Agreement 8 in Principle vote May 3 to 9 May 10 with attachment 853 10 11 CASIL 1001: Cover sheet and page 14 12 of Environmental Challenges 13 and Opportunities of the Evolving 14 North American Electricity 15 Market produced by the Secretariat 16 Report to Council under Article 13 17 of the North American 18 Agreement on Environmental 19 Cooperation 885 20 21 CEC 1001: List of pre-hearing exhibits 22 filed up to but not including 23 March 1st 823 24 25 820 1 INDEX OF EXHIBITS 2 3 Number Page 4 5 CAC/MSOS-1000: Financial results for 2020 6 Wuskwatim I/S 922 7 CAC/MSOS-1001: Financial results for low 8 export price scenario 922 9 CAC/MSOS-1002: Financial results for high 10 export price scenario 922 11 CAC/MSOS-1003: NPV and IRR Illustrative 12 example 952 13 14 15 16 17 18 19 20 21 22 23 24 25 821 1 2 INDEX OF UNDERTAKINGS 3 UNDERTAKING NO. PAGE 4 5 NCN-20 UNDER ADVISEMENT: Advise if 6 revenue from Wuskwatim will come 7 directly to South Indian Lake since 8 it has a large population of NCN 9 membership 841 10 MH-21: Advise where Article 8 is found 11 in the filing 883 12 MH-22: Advise whether the Voluntary 13 Climate Change Report is already 14 within the exhibits filed 887 15 MH-23: Advise why LCG Consultants 16 forecast is higher than others 983 17 MH-24: Provide reference for 18 EIA analysis 989 19 MH-25: Produce table showing IRR for 20 small and big wind 1066 21 MH-26: Provide levelized cost 22 calculation 1067 23 24 25 822 1 MONDAY, MARCH 8, 2004 2 Upon commencing at 9:08 a.m. 3 4 THE CHAIRMAN: We're ready to go. Before we 5 do, I will invite our Elder to come and say the 6 opening prayer. 7 ELDER DYSART: Thank you. Good morning, 8 ladies and gentlemen. I welcome everybody back. I 9 had a safe trip back and it's a lovely day and I hope 10 we have a good day today. Let us pray. 11 12 (PRAYER) 13 14 ELDER DYSART: Thank you. 15 THE CHAIRMAN: I hope everybody has had a good 16 weekend, a lot of rest, sniffed some fresh air 17 because you're now locked in here for the next three 18 days. 19 As we begin, I ask Rory to present some of the 20 exhibits. 21 MR. GREWAR: Mr. Chairman, just one exhibit 22 I'd like to tender for the Commission to accept filed 23 by the CEC would be the list of pre-hearing exhibits. 24 These are exhibits that were filed up to but not 25 including March 1st, be introduced as Exhibit 823 1 CEC-1001. 2 3 (EXHIBIT CEC 1001: List of pre-hearing 4 exhibits filed up to but not including 5 March 1ST) 6 7 THE CHAIRMAN: Then I go to Manitoba Hydro and 8 NCN for documents that you had committed to present 9 whether you have any undertakings. Mr. Mazur? 10 MR. MAZUR: Good morning, Mr. Chair. I had a 11 couple undertakings, one related to the guyed lattice 12 steel towers that I can present verbally if you wish. 13 It references on page 801, 802, Volume 3 of last 14 Wednesday's questioning. And if I may, I'll just 15 read a response that I have here. 16 The lattice guyed design has been our choice 17 for 230 kV transmission lines built in Northern 18 Manitoba for a number of years. This design has been 19 used for the following transmission line projects: 20 Herblet Lake - Cliff Lake 230 kV line - 143 21 kilometres, constructed in 1996. Ross Lake Cliff 22 Lake 115 kV transmission line - 3 kilometres, 23 constructed in '94. The Limestone - Henday 5 times 24 230 kV transmission lines, 5 times 10 kilometres, 25 constructed in '92. 824 1 The guyed tubular design was only used for two 2 138 kV line projects. The Radisson - Churchill line 3 built in 1987 and the North Central Project 4 transmission lines built between '97 and '99. 5 It's worth noting that the 230 and 138 6 transmission lines have very different design 7 paramaters. The lower voltage that is 138 versus 230 8 thus smaller phase separation and lighter design. 9 The smaller conductor, typically 266 to 477 MCM for 10 138 versus the larger 954 MCM circular mills for 230 11 design. 12 It is our experience that a guyed lattice 13 tower provides the most economic solution for a 230 14 kV construction in Northern Manitoba. It provides a 15 number of benefits. It's a flexible design allowing 16 adding tower shaft extensions, thus long spans and 17 higher conductor suspension height which is important 18 in hilly terrain. Its ease of transportation. Tower 19 members consists of steel angles which are bundled 20 for shipping. And ease of storage due to bundling of 21 parts. 22 The second undertaking was the issue of 23 permafrost. Again, page 804, 805 of the Volume 3. 24 One of the goals of the transmission line routing 25 process is to select the transmission line route 825 1 which would minimize the installation cost. The 2 route was chosen to avoid wet, swampy areas where 3 permafrost could be encountered as much as possible. 4 Furthermore, during spotting of the actual tower 5 locations, those areas will be avoided and tower 6 locations adjusted as much as possible. 7 However, some towers will have to be located 8 in permafrost. Based on the aerial photography 9 interpretation of the Thompson Birchtree - Wuskwatim 10 transmission line segment, we estimate about 9 per 11 cent of the line route is in permafrost. 12 Manitoba Hydro is a tower foundation design 13 which exists for this application since we have a 14 number of existing transmission lines in permafrost 15 areas. Thank you. 16 THE CHAIRMAN: Thank you. That having been 17 done, we are ready to proceed this morning. 18 MR. KUCZEK: I have an undertaking as well. 19 THE CHAIRMAN: Go ahead, Mr. Kuczek. 20 MR. KUCZEK: The undertaking that I had 21 related to the Market Potential Study and 22 specifically the industrial sector. And the question 23 was if the -- the assumption used was that we 24 excluded technologies with the prospect of 25 commercialization more than five years away. And 826 1 specifically the question was if we could find out 2 specifically what those technologies were and why the 3 decision was made to eliminate them or not to proceed 4 with them. 5 We mentioned that this was outside of the 6 scope of the study with the consultants. So there 7 was no list specifically that was reviewed between 8 our engineering technical staff and the consultant. 9 However, there are lists out there that are published 10 by organizations such as the U.S. Department of 11 Energy, Office of Industrial Technologies and also 12 another organization, American Council for Energy 13 Efficient Economy. 14 To give you a couple of examples of what these 15 technologies are, one would be electric motor 16 efficiency improvements. And it's believed that 17 there is efficiency improvements that could be 18 accomplished through technology changes, use of 19 materials specifically in this case, possibly using 20 copper as opposed to aluminum in the rotors and using 21 a different type of steel in the stators. 22 Another example would be adjustable speed 23 drives. They are fairly efficient right now and they 24 are looking at possibly improving those efficiencies 25 but they are marginal. 827 1 And in terms of why they were excluded, we 2 believe there is significant risk assuming that many 3 of these technologies would be commercialized within 4 the study period. The study period is 15 years so 5 when we're talking about beyond five years, there's 6 only ten years. There is also significant 7 uncertainty moving from the R & D phase to 8 commercialization, first in terms of whether these 9 technologies will make it. The number of 10 technologies that will make it, we expect that there 11 will be very few if they do make it. 12 And there's other issues that need to be 13 resolved in regards to production issues, timing of 14 the technology is becoming commercialized. And then 15 last would be the costing and whether they'd be 16 economic or not. 17 So because of the risk, we viewed that if you 18 did include any of these, you'd have to use a 19 different assessment process because of the higher 20 risk. And it would involve likely higher discount 21 rates, considerably higher discount rates. And the 22 conclusion was that there would be relatively -- the 23 impact would be relatively insignificant. So it 24 wasn't included in the study. 25 THE CHAIRMAN: Any more undertakings to table 828 1 at this time? All right then. We are ready to 2 proceed. 3 I understand that the representatives from 4 CASIL, Community Association of South Indian Lake, 5 are present and will proceed with the questioning in 6 regards to the needs and alternatives at this time. 7 Thank you. 8 Please identify yourselves. And, Mr. Grewar, 9 you will at this time proceed to -- 10 MR. GREWAR: I don't believe we would swear 11 them in at this point, Mr. Chairman. They are just 12 simply asking questions. 13 THE CHAIRMAN: Okay. 14 MR. DYSART: Good morning, Mr. Chairman, and 15 the rest of the Commission. First of all, I'd like 16 to thank you for allowing me the opportunity to 17 question Manitoba Hydro and NCN on their proposed 18 Wuskwatim project. 19 THE CHAIRMAN: Please identify yourself to 20 begin. 21 MR. DYSART: Okay. My name is Leslie Dysart. 22 I am representing the Community Association of South 23 Indian Lake. And for the record, I am not an 24 economic terrorist nor is the group I'm representing. 25 If the Chair will allow, there will be two 829 1 parts to my questioning. I will proceed with the 2 first part and my colleague will proceed with the 3 second part. 4 Good morning, Panel. I'm going to jump right 5 into questioning regarding the Nisichawayasihk Cree 6 Nation vote that took place. I guess I'll be 7 directing my questions to Councillor Thomas. 8 THE CHAIRMAN: Sorry? 9 MS. MATTHEWS LEMIEUX: Valerie Matthews 10 Lemieux, counsel for Nisichawayasihk Cree Nation. I 11 would object to the nature of that question. It's 12 beyond the terms of reference for this hearing in 13 terms of any issues related to the vote in Nelson 14 House. 15 THE CHAIRMAN: Well, we did discuss issues 16 regarding the votes of the Nelson House the other 17 day. And I haven't heard any questions yet so I will 18 not disallow anything at this time. So please 19 proceed. Order please. 20 MR. DYSART: Thank you, Chair. Okay. I'll 21 just have some questions of background. My first 22 question is where are all NCN members located like 23 throughout Manitoba and abroad I guess? 24 MR. THOMAS: The answer to the question is 25 that we have NCN members who reside in Nelson House, 830 1 at Nelson House proper. We also have NCN members who 2 reside in South Indian Lake. We have NCN members 3 living in the City of Thompson. We also have NCN 4 members living in the City of Winnipeg and also in 5 the City of Brandon. Elsewhere, we have others 6 living in different parts of the country or the 7 world. Those I don't know exactly where they would 8 live. 9 MR. DYSART: Approximately how many members 10 are on the NCN membership list? 11 MR. THOMAS: On the NCN membership list, we 12 have close to 5,000 people who are registered Band 13 members. 14 MR. DYSART: So exactly how much is 51 per 15 cent of a majority of eligible voters? Do you have 16 that information? 17 MR. THOMAS: I believe the figure is around 18 close to 2,000. Although the exact number I don't 19 have on hand right now, but approximately that 20 number. 21 MR. DYSART: Okay. Now in your presentation, 22 I think it was the first day if I'm correct on that, 23 you mentioned you followed a procedure called a 24 Double Majority Process in regards to the vote; is 25 that correct? 831 1 MR. THOMAS: That's correct. When we have 2 referendums, we follow the procedures that have been 3 established by the Indian Act provisions. And when 4 the referendums are done, there is a requirement that 5 there be a double majority. In other words, of all 6 the eligible members that are eligible to vote, 51 7 per cent of those must participate in the election or 8 in the referendum. And of those that vote, 51 per 9 cent must say yes or no to the particular question at 10 hand. 11 MR. DYSART: Okay. Again, I think it was 12 Monday as part of your presentation, you said you're 13 not sure or you may follow that process for the next 14 vote in regards to the PDA. 15 MR. THOMAS: Because we're not dealing with an 16 issue that deals with the land, I believe it is a 17 major issue that determines whether or not referendum 18 rules under the Indian Act kick into place. We're 19 not -- I don't believe that we are actually required 20 to make use of those referendum rules; however, we 21 have used them because they are the mechanism that 22 most of our people are familiar with when it comes to 23 making major decisions that impact upon them that 24 require the use of referendums. 25 So while we may not be required to use it for 832 1 this particular project, we have used it and I 2 believe that we are going to be using it for the next 3 referendum. 4 MR. DYSART: Has NCN ever followed any other 5 process? 6 MR. THOMAS: Other than general elections, no, 7 I am not familiar with any other uses of referendums. 8 MR. DYSART: What factors would make you 9 decide whether to use it or not, the double majority 10 process? 11 MR. THOMAS: I do believe that we have already 12 established the way that we should be conducting the 13 referendum by at least in the last referendum that we 14 did with respect to the Agreement in Principle, we 15 utilized a particular approach under the Indian Act 16 as required. And it is my expectation that we will 17 be following the same referendum rules. 18 MR. DYSART: So we could confirm that you will 19 be using the double majority process as described 20 under the Indian Act? 21 MR. THOMAS: Yes. 22 MR. DYSART: Thank you. Again, I think it was 23 on day one of the proceedings, you referred to the 24 vote taking place in September of 2001 in regards to 25 the AIP. Is it not that it took place in May of 2001 833 1 just to clarify? 2 MR. THOMAS: The official ratification itself 3 occurred on September 25, 2001 and that was the date 4 that I referred to as the actual date where the 5 results of the referendum were signed by everyone. 6 So while we conducted the referendum earlier, the 7 official signing ratification occurred at that time. 8 So that's why I referred to that particular date. 9 MR. DYSART: Okay. So in your reference to 10 September, it would have been the actual signing, not 11 the actual vote? 12 MR. THOMAS: Yes. 13 MR. DYSART: The vote did take place in May? 14 MR. THOMAS: I do remember that, if it serves 15 me correctly, I think it was in May, yes. 16 MR. DYSART: Okay. Why was there two dates in 17 May when the vote took place? I refer to an open 18 letter produced by the Nisichawayasihk Cree Nation to 19 its membership. And in there, it identifies two 20 dates when the vote took place, May 3rd and May 10th 21 of 2001. 22 MS. MATTHEWS LEMIEUX: Perhaps Mr. Thomas 23 might want to see the letter. If anything turns on 24 it, we can clarify there was an advance poll and 25 there was the ratification vote. The advance poll 834 1 was May 3rd. May 10th was the ratification vote. 2 MR. GREWAR: I do have copies of this 3 correspondence. Does the Commission and Mr. Thomas 4 wish to see it? 5 MR. THOMAS: If I may. 6 THE CHAIRMAN: Proceed, Mr. Dysart. 7 MR. DYSART: Thank you. Just to clarify then, 8 May 3rd would have been an advance poll? 9 MR. THOMAS: Yes. 10 MR. DYSART: And May 10th would have been the 11 actual voting day? 12 MR. THOMAS: Yes. 13 MR. DYSART: Did any outside government or 14 agency scrutinize the voting process? 15 MR. THOMAS: No. 16 MR. DYSART: Under the Indian Act rules, is 17 there a requirement for scrutinization? 18 MR. THOMAS: Yes. 19 MR. DYSART: Why was it not followed? 20 MR. THOMAS: There were different people 21 involved and there were various people chosen to be 22 scrutinizing when the polls took place. So I'm not 23 sure where you'll be coming from that there were no 24 scrutineers because there were people that observed 25 to make sure that things were being done or 835 1 procedures were being followed properly. 2 MR. DYSART: These people would be retained by 3 NCN? 4 MR. THOMAS: These people would be identified 5 by the people that are concerned about such matters, 6 generally. To make sure that they have people there 7 to observe that everything is being done 8 legitimately. 9 MR. DYSART: So just to confirm, there would 10 have been no outside group, independent group 11 scrutinizing the voting process? 12 MR. THOMAS: No. 13 MR. DYSART: I'd like to go over some numbers 14 for you, if you can just confirm or not. These 15 questions will be just to clarify for the benefit of 16 the members or the public that are not -- who don't 17 have a copy. 18 In regards to the letter and the data attached 19 to it. The total eligible voters is 1,989; is that 20 correct? 21 MS. MATTHEWS LEMIEUX: That's not in the 22 one-page letter. 23 MR. DYSART: It was the attachment to the 24 letter. I'm sorry. 25 MS. MATTHEWS LEMIEUX: Could we also seek 836 1 clarification. Are these documents being marked? 2 Are they being tendered as exhibits? 3 THE CHAIRMAN: Mr. Grewar, I believe these 4 documents will be tendered? 5 MR. GREWAR: Yes, Mr. Chairman. I would think 6 they would be tendered as exhibits. 7 MR. DYSART: I guess I'll repeat my initial 8 question. The total of eligible voters is 1,989. 9 MR. THOMAS: The tally is done by the 10 membership clerk and also by the person who is 11 conducting the vote, the electoral officer. The 12 numbers that they have are the numbers that we go by. 13 And generally, it's I believe around 1,989 as you 14 referenced. And the total turn-out for this 15 particular vote was about 1,427 as indicated in the 16 documentation. 17 MR. DYSART: Okay. Now, with the data that we 18 have, again supplied by Nisichawayasihk Cree Nation, 19 the lowest turn-out was actually on reserve in NCN of 20 65 per cent approximately. 21 MS. MATTHEWS LEMIEUX: Perhaps it would help 22 if -- 23 THE CHAIRMAN: Would you identify yourself. 24 MS. MATTHEWS LEMIEUX: Yes, Valerie Matthews 25 Lemieux for the record. Perhaps Mr. Dysart could 837 1 actually refer Mr. Thompson to the particular part 2 that he's asking the question about. 3 MR. THOMAS: Yes. 4 MR. DYSART: You're confirming, okay. And the 5 total yes vote overall was 66 per cent as you 6 previously stated approximately? Or not 7 approximately, 935 members? 8 MR. THOMAS: Could you repeat the question, 9 please? 10 MR. DYSART: In regards to the overall NCN 11 membership, the total yes vote was 935 members which 12 equates to 66 per cent? 13 MR. THOMAS: Our calculations, are you 14 referring to this particular document here? 15 MR. DYSART: They are both -- they both -- 16 MR. THOMAS: Yes. 17 MR. DYSART: So in reference to the 82 per 18 cent you've stated and also as page 1 also states, 19 it's only referencing on-reserve eligible voters or 20 on-reserve voters. 21 MR. THOMAS: Yes. When I make those comments, 22 I'm talking about all the NCN people who are eligible 23 to vote that reside in Nelson House who participate 24 in the referendum. And based on the numbers that did 25 participate, 82 per cent of those that did vote 838 1 supported what we were doing, yes. 2 MR. DYSART: But it does not reflect overall 3 membership? 4 MR. THOMAS: That is not overall. The number 5 66 per cent that you have identified is the overall 6 total. 7 MR. DYSART: Now, specific to South Indian 8 Lake, the no vote was 267 which equates to 80 per 9 cent. Again, I'm referring to voter turn-out on the 10 bottom part of the data sheet. Sorry, excuse me, 11 it's the middle spreadsheet there, circled figure. 12 MR. THOMAS: Yes. 13 MR. DYSART: Now, would you agree, South 14 Indian Lake membership on the Nisichawayasihk 15 membership list is approximately 22 to 25 per cent of 16 your total membership? 17 MR. THOMAS: The numbers that I'm generally 18 told are between 20 and 25 per cent. I'm not sure 19 whether it goes as high as 25 per cent but certainly 20 20, 22 even has been referenced as the appropriate 21 figure. 22 MR. DYSART: So we can agree that it's 23 approximately in that area? 24 MR. THOMAS: I would agree that it's between 25 20 and 22. 839 1 MR. DYSART: Okay. So a large portion, a 2 large percentage of your membership voted no against 3 the Agreement in Principle? 4 MR. THOMAS: I wouldn't go -- I wouldn't 5 characterize it that way. I would say that of the 6 people that participated in the referendum, for those 7 who are NCN members residing in South Indian Lake, 8 the overwhelming majority did say no to the question 9 that was being posed to them in the referendum. But 10 that is not reflective of the total NCN population. 11 MR. DYSART: My next question is in regards to 12 the benefits that have been as part of your 13 documentation in your public information process. 14 Since we established South Indian is a large 15 portion of your overall membership, will the benefits 16 of sharing, for example, revenues be shared with 17 off-reserve members? 18 MR. THOMAS: Could you repeat that question, 19 please? 20 MR. DYSART: In regards to benefits, more 21 specifically revenue, will revenue sharing or will 22 revenue be shared with off-reserve members? 23 MS. MATTHEWS LEMIEUX: If I can just clarify. 24 MR. THOMAS: I'm not quite sure how to answer 25 that question. 840 1 MS. MATTHEWS LEMIEUX: Excuse me. 2 THE CHAIRMAN: I will let Mr. Thomas answer 3 please. 4 MS. MATTHEWS LEMIEUX: I just wanted to get 5 clarification of the question. Revenues from what? 6 THE CHAIRMAN: Mr. Dysart. 7 MR. DYSART: From the profits of Wuskwatim, 8 the project. 9 MR. THOMAS: As it stands right now, all the 10 negotiations that have taken place have been done in 11 a way to ensure that the benefits come to NCN, the 12 NCN membership. 13 MR. DYSART: Will they be shared with 14 off-reserve numbers? 15 MR. THOMAS: The NCN membership consists of 16 both on-reserve and off-reserve members. 17 MR. DYSART: So that's a yes? For example, 18 will revenue come directly to South Indian Lake since 19 it has a large population of NCN membership? 20 MR. THOMAS: I need a little time to think 21 about the question there, Commission. 22 THE CHAIRMAN: You can take it under 23 advisement if you wish, Mr. Thomas. 24 MR. THOMAS: Can I take that question under 25 advisement? 841 1 MR. DYSART: Okay. 2 3 (UNDERTAKING NCN-20 UNDER ADVISEMENT: Advise if 4 revenue from Wuskwatim will come directly to South 5 Indian Lake since it has a large population of NCN 6 membership) 7 8 MR. DYSART: Assuming your answer to my 9 previous question would be yes, will membership, more 10 specifically South Indian, know what those benefits 11 will be before the Power Development Agreement vote? 12 MR. THOMAS: With regard to the question that 13 has been asked, there is a situation that is 14 unfolding at this point in time. The community of 15 South Indian Lake is on track to become its own 16 separate First Nation. We respect that and honour it 17 as it unfolds. And we are in the process of 18 discussing the situation with respect to how assets 19 will be divvied up by the communities when the time 20 comes for South Indian Lake to achieve First Nation 21 status. 22 So in terms of any concrete discussions or 23 commitments with regard to the benefits that would 24 come about from Wuskwatim, those issues are still 25 under discussion. No commitment has been made one 842 1 way or the other. 2 MR. DYSART: I am familiar with the other 3 process you referred to. Specifically, who are you 4 discussing the sharing of profits in regards to 5 Wuskwatim? I know there's other issues there. 6 MR. THOMAS: Repeat the question, please? 7 MR. DYSART: Who are you in negotiations, if 8 there is a negotiation, in respect to Wuskwatim 9 revenue sharing? Who are you negotiating with? 10 MR. THOMAS: Currently, the only people that 11 we're negotiating with are the Crown Corporation of 12 Manitoba Hydro. 13 MR. DYSART: In regards to the future PDA 14 vote, when will this vote take place? 15 MR. THOMAS: As I've indicated earlier, we 16 have not identified a specific date. It is expected 17 that perhaps if all the -- if everything lines up in 18 the way that we would like, probably towards the end 19 of August, beginning of September, around that time 20 frame. 21 MR. DYSART: How will you decide when? 22 MR. THOMAS: It will probably be determined by 23 how well the rest of the negotiations are occurring. 24 If we feel that we have finalized all the details 25 with respect to the PDA that we are working on, once 843 1 that's complete, then we will need time to take the 2 information to the community and then a date will be 3 set for the actual vote itself. 4 MR. DYSART: Okay. What components do you 5 still need in place prior to a vote? Earlier you had 6 referenced the compensation agreement. 7 MR. THOMAS: We've got a number of areas that 8 have been referenced in the documentation that has 9 been provided to the Commission and everyone else who 10 is a participant here. We have a number of 11 agreements that have to be finalized, financing 12 agreements, adverse effects agreements and other 13 agreements that are part of the overall structure of 14 the PDA itself. So all those areas will have to be 15 covered. 16 MR. DYSART: Will these agreements, once they 17 are I guess finalized or in draft, be shared with all 18 membership prior to a vote? 19 MR. THOMAS: As we've indicated previously, 20 the process that we have undertaken is one that is 21 community-driven and it is one that is open and 22 transparent. And we have provided all the necessary 23 information to all our members. And it is my 24 expectation that all the information that will be in 25 the final PDA will be given to all our members in 844 1 order for them to be informed about all issues 2 sufficient for them to make an informed vote on the 3 issue. 4 MR. DYSART: The next questions are with 5 reference to Article 8 of the NCN NFA Comprehensive 6 Implementation Agreement. I understand you probably 7 don't have it in front of you. 8 MS. MATTHEWS LEMIEUX: We'll get a copy for 9 you. 10 MR. DYSART: If the Chair allows, I can quote 11 directly from the article I am referring to. 12 THE CHAIRMAN: Yes. I understand that counsel 13 is bringing a copy of the reference. But, yes, read 14 it for our benefit. 15 MR. DYSART: Okay. Article 8, specifically 16 8.4 deals with future development compensation. 17 8.4.1 states, 18 "In selecting an option for future 19 development, the impacts upon Nelson 20 House and the cost and methods for 21 compensating Nelson House and members 22 for adverse effects are relevant. 23 Consideration is to be addressed as 24 early in the process as feasible." 25 Now earlier this week, you said you hadn't 845 1 even reached or even started a compensation 2 agreement; is that correct? 3 MR. THOMAS: We've had some very very 4 preliminary discussions on the issue. In other 5 words, we need to focus our minds on it. But in 6 terms of any specifics agreed to, we hadn't come to 7 that point yet. 8 MR. DYSART: According to the Manitoba Hydro 9 schedule and yourselves as proponents, you were ready 10 to start constructing in January with the earlier 11 schedule. Why have you waited so long before you 12 started discussion for something that's referenced 13 directly in the Implementation Agreement? 14 MR. THOMAS: I guess I would have to reference 15 the article that you've referenced, Article 8.4.1. 16 If you go to the ending of that particular article, 17 it says that compensation are relevant considerations 18 to be addressed as early in the process as feasible. 19 We've undertaken a process that is quite 20 extensive. There's quite a significant number of 21 issues and areas that we have to cover as a 22 community. We engage in a consultation process that 23 is community-driven. And in taking these issues 24 into -- we've taken these issues into consideration 25 but we haven't actually found enough time in our 846 1 really crazy hectic schedules to be able to fit 2 everything in as nicely and neatly as may be expected 3 in these nice little packages that we make reference 4 as part of our process. 5 But we do have an agreement between each other 6 that we are going to be discussing these issues and 7 we have -- we're trying to start that process. But 8 between the parties, we know that we have to deal 9 with those issues and we are agreeing to deal with 10 those issues. It's just a matter of exactly when 11 we'll be able to do all that, that remains to be 12 seen. 13 MR. DYSART: Why would yourselves as 14 co-proponents and Manitoba Hydro as the other 15 co-proponent be seeking approval of the proposed 16 project prior to ensuring the rights of your members 17 are protected? 18 MR. THOMAS: We are not seeking a final 19 approval for this particular project. This process 20 that we're going through right now is part of the 21 overall process that we have to go through in order 22 for us to be able to do a project of this sort. The 23 final decision will come from our people when the 24 referendum occurs and also when the Manitoba Hydro, 25 through its Executive and its Board structures, makes 847 1 the decision that they are going to proceed. 2 MR. DYSART: But through this process, 3 yourselves and the co-proponents are seeking approval 4 for this project; is that not correct? 5 MR. THOMAS: We are going through a process 6 based on my understanding of this process and we are 7 going through a regulatory process that requires us 8 to assess the environmental impacts that this project 9 will have. We produced an Environmental Impact 10 Statement that has been given over to the Commission 11 to review and look at. And then we go through a 12 series of presentations in different areas. We also 13 are questioned on a number of different areas that 14 may be areas of concern. And then a final 15 recommendation will emanate from the Commission to 16 the Minister. 17 So it is not a final decision to approve the 18 project per se. It is a part of the total overall 19 process that has to be undertaken. 20 MR. DYSART: As I understand the process, 21 Councillor Thomas, through this process from the 22 Commission, you were seeking recommendations to 23 proceed with the project, is that not correct, prior 24 to addressing your membership and any adverse 25 effects? 848 1 MR. THOMAS: For the part that the regulatory 2 bodies have to play in this whole, for the lack of a 3 better term, scenario, yes, we are expecting to get a 4 decision from the Commission as to whether or not 5 they are going to be willing to make a recommendation 6 to the Minister one way or the other. 7 And as co-proponents, yes, our expectation in 8 general is that we want to see if we can get a 9 positive recommendation. 10 MR. DYSART: So you're seeking these 11 recommendations prior to fully understanding effects 12 to your members and the compensation that is required 13 under Article 8? 14 MR. THOMAS: Could you repeat the question, 15 please? 16 MR. DYSART: You are seeking recommendations 17 to the Minister prior to fully understanding the 18 adverse effects and addressing the compensation issue 19 of that under Article 8 of your Implementation 20 Agreement. You're seeking recommendations to proceed 21 with the project prior to addressing these concerns? 22 MR. THOMAS: The Environmental Impact 23 Statement that has been produced via the assessment 24 that has been done I do believe contains all the 25 information that you're talking about. 849 1 MR. DYSART: But not compensation for adverse 2 effects? 3 MR. THOMAS: I believe I answered that 4 question already. 5 MR. DYSART: Okay. Referencing Article 8 6 again, specifically 8.43 states, 7 "It is in the best interest of Nelson 8 House and Hydro to fully assess and 9 finalize compensation issues prior to 10 formal commencement of any federal or 11 provincial environmental review and 12 licensing process." 13 Is that what the article states? 14 MR. THOMAS: Yes. 15 MR. DYSART: Why have you deviated from the 16 agreement? 17 MR. THOMAS: We have not deviated from what is 18 contained in Article 8. We are following Article 8 19 but we've started discussions on it but we haven't 20 finalized anything yet. And I believe that we are 21 within the scope of what is permissible within the 22 Article 8 documentation here. 23 MR. DYSART: Thank you, Councillor Thomas. 24 MR. THOMAS: Thank you. 25 MR. DYSART: I just have one question that I 850 1 will probably direct to Manitoba Hydro, probably Ed 2 Wojczynski. There's something that yourselves and 3 the Commission had discussed on the third day, the 4 final day last week. It's been on my mind for the 5 past five days I guess. 6 In regard to the fixed blade design of your 7 generators, you kept referring to them as fish 8 friendly. Could you define that for me? 9 MR. WOJCZYNSKI: Yes. When we're talking 10 about the propellers, there are different kinds of 11 designs that one can use in Hydro projects. There 12 are some that have many blades and that have 13 relatively thin edges, relatively sharp edges and 14 fast moving water. And in those cases, there is a 15 higher likelihood and susceptibility of fish being 16 hurt in one way or another if they go through those. 17 And so there has been an increasing 18 information and assessment of what kind of design is 19 the most suitable for minimizing impact on fish. And 20 so the kind of design we are using in Wuskwatim is of 21 that type that has a relatively small number of 22 blades and they are fairly wide, fairly thick blades 23 so they are not very sharp. And so the movements of 24 the water is fairly uniform around them. And so 25 there is less impact on the fish. So that's what we 851 1 are referring to. 2 MR. DYSART: Impacts to fish, is that death 3 and injury, basically? 4 MR. WOJCZYNSKI: Impacts to fish would mean 5 injuries, and in some cases death, yes. But there 6 are a relatively small number of fish that would go 7 through those turbines. 8 MR. DYSART: Do you have any data to back up? 9 MR. WOJCZYNSKI: The Environmental Assessment 10 Panel would have more data on that. But I am 11 informed by them that there's a relatively small 12 number that would be going down there. But I think 13 it's better for the details of that to be dealt with 14 by the Environmental Panel. They are the experts on 15 that. 16 MR. DYSART: I'll deal with it then. Going 17 back to that fish friendly that you kept referring 18 to, is this Hydro's definition or -- 19 MR. WOJCZYNSKI: In the industry, generally 20 that's a term that's used. 21 MR. DYSART: Was there any First Nations or 22 traditional knowledge involved in defining fish 23 friendly? 24 MR. WOJCZYNSKI: The First Nation people and 25 traditional knowledge was used in the assessment of 852 1 the impacts of Wuskwatim and in consideration of what 2 would happen. So the term fish friendly is an 3 industry-wide term that's used. But for Wuskwatim 4 specifically, local people and First Nation people 5 and local people and traditional knowledge was used 6 in the assessment of the impacts. And was helped to 7 assist in their conclusion that the design we came up 8 with Wuskwatim has a much -- has less impact than 9 other designs that could have been undertaken. 10 MR. DYSART: But in regards to fish friendly, 11 that definition did not include participation from 12 NCN? 13 MR. WOJCZYNSKI: The term fish friendly is an 14 industry-wide definition. But our conclusion that we 15 could utilize that term for Wuskwatim was in part 16 made through the traditional knowledge brought in by 17 the Aboriginal people who live in the area. So yes, 18 their consideration and their judgment was part of 19 the decision for us to feel we could use that term. 20 MR. DYSART: Okay. Thank you, Mr. Wojczynski. 21 MR. WOJCZYNSKI: You're welcome. 22 MR. DYSART: With the Chair's permission, I'd 23 like to turn over my questions to Merrell-Ann Phare. 24 THE CHAIRMAN: Yes. 25 MR. GREWAR: Mr. Chairman, just before we do 853 1 that, perhaps we could enter the correspondence that 2 Mr. Dysart was referring to as Exhibit CASIL 1000, 3 letter undated from Nisichawayasihk Cree Nation, 4 Chief and Council to TANSI, re NCN Manitoba Hydro 5 Agreement in Principle vote May 3 to May 10 with 6 attachment. 7 THE CHAIRMAN: Thank you. 8 9 (EXHIBIT CASIL 1000: Letter undated from 10 Nisichawayasihk Cree Nation, Chief and 11 Council, re NCN Manitoba Hydro Agreement 12 in Principle vote May 3 to May 10 with 13 attachment) 14 15 THE CHAIRMAN: Please proceed and identify 16 yourself. 17 MS. PHARE: My name is Merrell-Ann Phare. 18 Just before I start questioning, I just wanted to 19 clarify that I know we're supposed to be 20 cross-examining on Need For and Alternatives To one 21 of two components, the other one being Environmental 22 Impact Statement, but some of the presentations made 23 by the co-proponents in the beginning at day one 24 actually include other parts that we are interested 25 in. And I just wanted to state right now that the 854 1 components dealing with the water regime in 2 particular, we would request to be able to 3 cross-examine on those in the Environmental Impact 4 Statement component because it is more related in our 5 view to that. And so we didn't know if that was a 6 correct judgment to make but we wanted to put that on 7 the record. 8 THE CHAIRMAN: You wanted to address it in 9 this particular? 10 MS. PHARE: No, in the Environmental Impact 11 Statement component. 12 THE CHAIRMAN: That seems correct to me. 13 MS. PHARE: Okay. Great, thank you. I just 14 have I think three or four areas of questioning. The 15 first two are quite short and the other one will take 16 a little bit more time. 17 The first one deals with increasing the 18 reliability of supply to Manitobans. Building 19 Wuskwatim will increase the reliability of electrical 20 supply I suppose to Manitobans. Do you recall saying 21 that? 22 MR. WOJCZYNSKI: Yes, I do. 23 MS. PHARE: Okay. And I'm trying to find out 24 what that actually means. Because as I understand, I 25 completely understand the issue of Wuskwatim per se 855 1 is not going to be exported, it contributes to a 2 broad system of electricity that then some components 3 of that are exported. So it's not that Wuskwatim 4 power specifically, uniquely, distinctly is export; 5 am I correct in that? 6 MR. WOJCZYNSKI: Yes. 7 MS. PHARE: So how long are export contracts 8 generally? Like with the addition of Wuskwatim, what 9 would you anticipate would be the length of the 10 export contract for that power? 11 MR. WOJCZYNSKI: There will be a range of 12 different kinds of contracts. They will range from 13 hour to hour, contracts to contracts as long as 10 or 14 20 years or even potentially longer. And so it would 15 be a variety of contracts. 16 MS. PHARE: Okay. 17 MR. WOJCZYNSKI: So the central assumption or 18 main assumption we made in the analysis was that the 19 dependable energy out of Wuskwatim which is the 20 amount that we are therefore confident of getting 21 even in a system drought, that we will sell -- make 22 long-term contracts to sell that power and those will 23 typically be more than three years long. 24 MS. PHARE: Oh, okay. So long term is more 25 than three? 856 1 MR. WOJCZYNSKI: That's the terminology we're 2 using, yes. 3 MS. PHARE: Okay. One of the things I was 4 wondering about is you had said that in times of 5 emergency, you could hold back that power? 6 MR. WOJCZYNSKI: Yes, I did say that. 7 MS. PHARE: What are times of emergency? Does 8 that include -- specifically what I'm trying to get 9 at is does that include times where just demand is 10 greater than supply? When local domestic demand is 11 greater than supply, is that considered an emergency 12 condition? 13 MR. CORMIE: Whenever we have insufficient 14 resources to meet the load in Manitoba, Manitoba 15 Hydro is entitled, under all its export contracts, to 16 reduce deliveries to the -- under the contract in 17 order to serve Manitoba load. And it can be an 18 emergency, it can just be during droughts that are 19 more severe than we had planned on. But at all 20 times, the load -- the demand for electricity in 21 Manitoba, the load in Manitoba has priority over the 22 export load. 23 MS. PHARE: So you're not actually then in the 24 circumstance where you're breaking your contract, 25 it's that your contract actually allows you to do 857 1 that? 2 MR. CORMIE: The contracts allow for that. 3 MS. PHARE: Oh, okay. But you do have -- you 4 have to engage in some form of compensation? 5 MR. CORMIE: We have the right to reduce 6 deliveries to the extent necessary to continue to 7 serve our own load obligations. 8 MS. PHARE: And is there some form of 9 compensation you have to pay to the people you're in 10 contract with or are you just allowed to unilaterally 11 claw-back the supply of power without any 12 compensation to the people? 13 MR. CORMIE: It depends on the contract. The 14 vast majority of the contracts, there is no 15 liquidated damages paid under those circumstances. 16 MS. PHARE: The vast majority, oh, okay. I 17 was just trying to wonder how that works, thanks. 18 That clarifies it. 19 MR. WOJCZYNSKI: Perhaps I can supplement that 20 slightly. And that is that there are other 21 circumstances where we could just choose to buy our 22 way out of a contract where let's say we're into a 23 large drought situation, we can choose to 24 economically buy the power somewhere else and have it 25 supply our export contract. And in effect, it makes 858 1 our tie line bigger because it means that we have the 2 Wuskwatim power available in Manitoba. And by buying 3 the power somewhere else, we can keep the Wuskwatim 4 power. So it's just like make our import tie line 5 bigger than it would otherwise have been. So 6 Manitobans are better off even though we are 7 generally exporting Wuskwatim. 8 And that's the comment I made in my -- in the 9 first two days and Mr. Adams made a comment the other 10 day about where we're exactly the same with or 11 without Wuskwatim with its export contracts. But 12 what he and I were both implying was that we are able 13 to have this, as you put, a clawing back. But the 14 clawing back can just be in a very normal 15 businesslike manner, going and arranging for a 16 contract to buy power somewhere else and have it 17 diverted to the export load we are going to supply. 18 And that's a very normal business arrangement. So 19 it's nothing unusual and nothing disturbing to 20 people. 21 MS. PHARE: Okay. Thank you. I was noticing 22 from your original submissions that you had stated 23 that building Wuskwatim could displace fossil fuel 24 use elsewhere, thereby at the decreasing greenhouse 25 gas emissions. And then in your binder, your 859 1 presentation, your power points on Monday, in a 2 couple of places, particularly page 4 and page 69, 3 you seemed to have increased your level of confidence 4 in your ability to do that or the ability of 5 Wuskwatim to displace greenhouse gases in 6 particularly your export markets. 7 If you see actually on page 4, I can wait 8 until you get there so you can see the language that 9 you've used. 10 MR. WOJCZYNSKI: Yes, I have it. 11 MS. PHARE: Where you say that energy from 12 Wuskwatim reduces global greenhouse gas emissions. 13 And way at the end there, on page 69, I think it 14 says, let me just get my actual language here, 15 Wuskwatim will contribute to global efforts to reduce 16 greenhouse gases. 17 So I am just wondering, I'm wondering how you 18 know that. I'm wondering what you've done to be able 19 to show that it will actually reduce greenhouse gases 20 or whether in fact what we're talking about is more 21 of a potential to do that. There's the opportunity 22 for that. 23 MR. WOJCZYNSKI: No, we are extremely 24 confident that that's what's happening and will 25 happen. For starters, historically, if you look at 860 1 our long-term export contracts, and the best example 2 is the NSP 500 contracts, Northern States Power 500 3 megawatt contract that went on for 12 years. And 4 we've recently renewed, starting again in 2005. 5 Northern States Power, who is the entity that we made 6 the sale to, they were considering back in 1983 to 7 '85, building another new coal plant. They had three 8 units at a plant called Sherco, Sherburn County. The 9 third one was an 800 megawatt unit and they are 10 considering putting in a similar kind of unit, 11 another coal unit. And the choice they had to make 12 at that time was whether to put in another coal unit 13 or whether to put in our sale, commit to our sale. 14 So ultimately, the sale did go ahead. And the 15 pricing of the sale was directly related to the 16 alternate costs that they would have had to pay. And 17 that was for the coal plant they subsequently did not 18 build. That day, they went with our sale. 19 That was a very specific example. We know 20 generically that is what had happened in the past. 21 We are certain of that. 22 We are also certain that when we -- that when 23 you look at what's happening on the short-term 24 market, which is a large portion of the exports, that 25 if you've got a Hydro unit in our system, we are now 861 1 talking about historical units but we could also be 2 talking in the future about Wuskwatim, that if you 3 have that unit already in place and you've got a 4 thermal unit, whether it's gas or coal with the 5 United States in place, and you could look at other 6 let's say wind for example, that the incremental 7 operating cost for producing another kilowatt hour 8 from the Hydro or from the wind are very low. And 9 from the coal and the gas, they are much much higher. 10 So it is an absolute certainty that the vast 11 majority of the times, that what will happen when we 12 export that kilowatt -- that when we have our Hydro 13 unit, say we have an extra one, that that will be 14 displacing the operation of the coal and gas and not 15 displacing, for example, a wind facility. So we have 16 great certainty that that is what we have been doing. 17 And if you look into the future, the same kind 18 of parameters will be operating and so we have great 19 confidence that we have displaced vast amounts of 20 greenhouse gases and other emissions and that we will 21 continue to into the future and that Wuskwatim will 22 contribute to that in a significant way as well. 23 MS. PHARE: Are you familiar with a study that 24 was done by the NAFTA Commission for environmental 25 cooperation in 2002 dealing with environmental 862 1 challenges and opportunities of the evolving North 2 American electricity market? 3 MR. WOJCZYNSKI: Are you referring to the one 4 done by the CEC? 5 MS. PHARE: Yes. 6 MR. WOJCZYNSKI: Yes. I'm not familiar with 7 the details of it. Others are more familiar with it 8 but I have some familiarity with it. 9 MS. PHARE: It was that report that brought up 10 the question in my mind because, and I have three 11 copies. I have the original, I can hand it out, but 12 it's not -- all it does here is it shows that there's 13 a vast increase in the projected production of 14 electricity or the need for it through Canada, U.S. 15 and Mexico. And just in the States below us, there 16 is over 19,000 proposed -- 19,000 megawatts of 17 proposed power in the west north central. Just the 18 States just below Manitoba. And a huge portion of 19 that, 30 per cent almost, are coal plants and the 20 rest are oil and natural gas. 21 And so I'm just wondering how, when there's 22 such a huge increase over the next ten years say, 23 projected all through the United States of plant 24 production, how any greenhouse gases can be reduced 25 by any form of that? I mean you might be -- it 863 1 doesn't look like anything is being supplanted by 2 your power at all. In fact, it looks like there's a 3 definite increase in all forms of electricity 4 production by all forms. 5 MR. WOJCZYNSKI: So I think the answer to that 6 is -- the basic answer to that is if we didn't build 7 Wuskwatim, let me make up some hypothetical numbers 8 that are -- you said 19,000 megawatts down south of 9 us if I recall your number correctly. 10 MS. PHARE: Um-hum. 11 MR. WOJCZYNSKI: The basic answer would be 12 that if we did not build Wuskwatim, there might be 13 19,200 megawatts of coal and gas generation built 14 down south of us. And that if we build Wuskwatim, 15 and over the long run, there will be 200 megawatts 16 less of thermal generation built and so there will be 17 only 19,000. I mean still a very large amount of 18 thermal generation, still a very large amount of coal 19 and natural gas. I agree with you. I absolutely 20 agree with you. 21 But the fact that we bring forward some 22 renewable virtually non greenhouse gas electricity 23 into the market will reduce, to some small degree, 24 small in terms of the total percentage of the fossil 25 fuels in the United States but still a significant 864 1 amount of greenhouse gases. So in other words, the 2 more hydro we build, the more greenhouse gases we'd 3 reduce. 4 MS. PHARE: Are you planning on tracking that 5 in the future? Like are you planning on reporting on 6 whether in fact that the claim that you're making 7 will hold true, formally reporting on that? 8 MR. WOJCZYNSKI: What we can report on is that 9 whether we export it or not. Whether we are 10 exporting or not, it's impossible for anybody to go 11 in and determine what each kilowatt hour, each 12 megawatt hour displaced. But we do, as part of our 13 VCR reporting, indicate our best estimate. So what's 14 happening with our system, how much we produce and 15 what we displace on the export markets. So our VCR 16 reporting generically has that kind of information. 17 Sorry, VCR, I should explain. The Federal 18 Government has instituted in conjunction with, well, 19 has initiated a number of years ago a voluntary 20 climate change reporting system with monitoring. And 21 companies like us get audits done and we report that. 22 And there's, in effect, an assessment to that by the 23 organization, not organization, the federal 24 instituted organization. And those are all publicly 25 available. 865 1 MS. PHARE: If as you just say it's impossible 2 to know whether or not you'll displace greenhouse 3 gases, how can your claims be so definitive in your 4 presentation then? 5 MR. WOJCZYNSKI: I didn't say that we know and 6 are confident that we are displacing greenhouse 7 gases. We can't go and verify that a kilowatt hour 8 produced by Wuskwatim goes and reduces a kilowatt 9 hour at a unit in southern Minnesota or Dakota partly 10 because that unit would never have got built for 11 example. So let me use as an example. 12 If I mentioned that there would be instead of 13 19,200 megawatts built down south, there would only 14 be 19,000 megawatts built down south. 15 MS. PHARE: Yes, I understand that. 16 MR. WOJCZYNSKI: So in that case, let's say 17 there was a unit that was going to be called Laramie 18 number 9, that Laramie number 9 would never have 19 gotten built. So ten years or five years or whatever 20 after Wuskwatim is built, how do you go and 21 demonstrate that Laramie 9 was never built when it 22 was never built? That's what I'm referring to. 23 We can demonstrate that we are exporting into 24 the United States and that there's lots of coal and 25 gas generation still going on. And you can get 866 1 reliable and meaningful and confident indicators of 2 what we're displacing but it's not on a kilowatt 3 hour, kilowatt hour basis. So that's what I was 4 referring to. 5 MS. PHARE: Thank you. That's what I was in 6 fact getting at. I just wanted to confirm that in 7 fact you're making definitive statements about things 8 you can't specifically verify. 9 MR. WOJCZYNSKI: We can verify that we 10 displace greenhouse gases. 11 MS. PHARE: But not on a kilowatt by kilowatt? 12 MR. WOJCZYNSKI: Not on a kilowatt by kilowatt 13 basis, no. 14 MS. PHARE: In a very general way that you 15 can't actually follow up on or verify is what you 16 just said? 17 MR. WOJCZYNSKI: There's sufficient confidence 18 in that for any assessment to utilize that kind of 19 information. 20 MS. PHARE: Okay. We can leave it at that. I 21 wanted to move on now to the last area that I was 22 going to question about which is -- 23 MR. WOJCZYNSKI: If I can just supplement what 24 I said. The fact that we get paid for our exports 25 means that someone is buying from us instead of 867 1 supplying it themselves. That's a pretty strong 2 verification that we're displacing something. 3 MS. PHARE: I know, but you can't verify it 4 specifically. You can definitively state that you 5 will reduce greenhouse gases but you cannot give us 6 any numbers, either now or in the future, of how much 7 that will be. So you can make it a general claim in 8 support but you can't give us any numbers to back 9 that up is my point. 10 MR. WOJCZYNSKI: Yes, we can. 11 MS. PHARE: Are you making an undertaking to 12 do that then? 13 MR. WOJCZYNSKI: We already have. We have 14 provided reliable estimates of what we'd be 15 displacing and we have great confidence in those and 16 others in the industry who are knowledgeable in this 17 area would give the same kind of estimates. And 18 those are verifiable through the methodology used and 19 these are standard type methodologies used in the 20 industry. 21 MS. PHARE: So then you can confirm that you 22 will continue to report on exactly how much 23 greenhouse gas you displace through Wuskwatim over 24 time? 25 MR. WOJCZYNSKI: We can report on a system 868 1 basis what we do and the best estimates available of 2 that. Yes, we will do that. 3 MS. PHARE: Thank you. So then the next area 4 of questioning then I just wanted to deal with was 5 there was in Councillor Thomas' opening remarks about 6 the use of traditional knowledge, I just have a few 7 questions about that. Specifically, Councillor 8 Thomas stated that Aboriginal Law was included, 9 Aboriginal Law and how the environment works was I 10 think directly taken from transcript. And I just 11 wanted to have a better explanation of what you mean 12 by Aboriginal Law. 13 MR. THOMAS: There are a number of 14 understandings as to what constitutes Aboriginal Law. 15 In the legal system itself, you have what is 16 recognized in the common-law system as constituting 17 Aboriginal Law as it is recognized and affirmed by 18 the constitution. You also have Supreme Court 19 decisions that come out of any legislation or laws 20 that impact upon the First Nations people. 21 In particular, the Sparrow Case requires that 22 there be extensive consultation with First Nations 23 when it comes to anything impacting upon us as First 24 Nations people. And if anything is to occur in a way 25 that impacts upon our rights, the event, whatever it 869 1 is, must be justified. And there is a series of 2 processes that one has to go through in order to 3 satisfy the requirements of the Sparrow Case. 4 In addition, we have our own understandings of 5 what constitutes law as First Nations people. We 6 have our own opinions on what natural law is. And 7 it's not the typical understanding as is understood 8 within the legal system that it's something that 9 comes out of the common-law system as the common-law 10 system recognizes anything to do with First Nations 11 people. That may be part of it. But it may not be 12 necessarily restricted to that understanding. 13 We have, as First Nations people, our 14 observations of what happens within our traditional 15 territory and that is acquired from a variety of 16 sources. We have our own personal experiences. Many 17 of us have been taken out by our mothers and fathers, 18 our grandmothers and grandfathers. We have been 19 taught a lot of things about how the laws work with 20 respect to the way we see things. 21 And so the natural laws that we, as First 22 Nations people, have are quite comprehensive. And 23 those are the kind of laws that we are talking about. 24 MS. PHARE: Thank you for bringing that up. 25 I'll talk about some of the common-law issues a 870 1 little bit later, but I wanted to confirm. When 2 you're talking about Aboriginal Law about how the 3 environment works, you were referring to both forms 4 of law, western common-law and the natural law of 5 your community and the historical information? 6 MS. MATTHEWS LEMIEUX: Excuse me. I'd like to 7 make sure that Mr. Thomas at least has a copy of the 8 transcript in front of him. 9 MS. PHARE: 172 to 174 are the pages where 10 Councillor Thomas discussed this. 11 MR. THOMAS: So from our perspective, as 12 Aboriginal people, we do take quite a comprehensive 13 view on things. It is very inclusive as opposed to 14 being exclusive. And we do have our own way of 15 looking at things. But we're not restricted to 16 looking at things just from our own particular way of 17 looking at things. We also incorporate other 18 viewpoints that may be the same or may be different 19 from ours. 20 MS. PHARE: So in that component where you're 21 talking about the traditional knowledge that you 22 included in the studies, all the studies that have 23 been done, you were referring to both forms of 24 knowledge, were you? Is that what you're saying? 25 MR. THOMAS: Yes. As you can tell from the 871 1 presentations that were done and the comments that I 2 had made previously, we incorporated both what we 3 refer to as traditional knowledge and also western 4 scientific knowledge. 5 MS. PHARE: Okay. Can I get a clarification? 6 Was traditional knowledge included in both the EIS 7 and the Need For an Alternative To or just the EIS? 8 MR. THOMAS: I do believe that it was used for 9 both. 10 MS. PHARE: So your community members 11 specifically gave traditional knowledge input into 12 the need for Wuskwatim? 13 MR. THOMAS: It's pretty technical on The Need 14 For an Alternatives To side of things but 15 nonetheless, we've participated as members of the 16 Committee to look at these various things. Some of 17 my colleagues and some of my other people have made 18 comments and suggestions on different things to look 19 at with respect to these things. So in that sense, 20 traditional knowledge was incorporated into it. 21 MS. PHARE: I didn't see that referred to 22 anywhere in The Need For An Alternatives To 23 components of the materials filed. 24 MR. THOMAS: I think I'll let Ed answer this 25 particular question. 872 1 MR. WOJCZYNSKI: In the Need For An 2 Alternatives, the traditional knowledge was very much 3 part of the design of Wuskwatim in the first place, 4 clearly a major part of Need For Alternatives is what 5 is Wuskwatim, what should it be. And so with 6 traditional knowledge, it was a major component in 7 the design and planning for Wuskwatim. 8 Secondly, on assessing what are the overall 9 impacts. And so when comparing Wuskwatim to other 10 alternatives, there was a major influence in there 11 and a discussion of how it's going to operate and how 12 the plant is going to operate and the modes for 13 operation. So those are all major elements of what 14 goes into the Need For An Alternatives. And when you 15 compare that to other alternatives, the thoughts of 16 traditional knowledge on what we're doing with our 17 Hydro are an important consideration. 18 MS. PHARE: Could you give me examples, I'm 19 sorry if you want to just refer me to it, I can check 20 it on my own but I couldn't find anything about 21 traditional knowledge giving you any direction or 22 indication about alternatives to Wuskwatim. 23 MR. WOJCZYNSKI: The traditional knowledge 24 wasn't in the sense of the traditional knowledge of 25 the Cree people in north about wind generation in 873 1 Southern Manitoba. That wasn't in there because that 2 wasn't the aspect of traditional knowledge and isn't 3 an area that traditional knowledge has a strength. 4 The traditional knowledge, where it came into play 5 was in all the issues relating to Wuskwatim itself. 6 And that was detailed in the EIS and what we used in 7 the Need For Alternatives we referred to, and relied 8 on EIS to expound on all the Wuskwatim design and 9 planning issues including the incorporation of 10 traditional knowledge. 11 MS. PHARE: Councillor Thomas just pointed out 12 that his community's perspective included both 13 western science and traditional knowledge and NCN is 14 a co-proponent. And so I'm struggling to figure out 15 why the community's knowledge wouldn't be brought 16 into the alternatives component when yours was. 17 MR. WOJCZYNSKI: In the Need For An 18 Alternatives, NCN was part and parcel of the 19 preparation and discussion of the Need For An 20 Alternatives submission. 21 MR. THOMAS: If I may just add to the comments 22 that are being put out. As I've indicated 23 previously, that we've identified a number of things 24 that we consider to be a part of traditional 25 knowledge. And I've indicated also that my stating 874 1 these things or identifying them in word form doesn't 2 restrict us from including other things within 3 traditional knowledge. 4 We had been involved in this process for quite 5 a long period of time. We have involved our 6 community. We have involved the community of South 7 Indian Lake as well where NCN members reside. All 8 the knowledge, all the information that has been 9 given out by our people has been included in our 10 thinking and in our discussions. 11 In some specific cases, we have situations 12 where we have an Elder's liaison person who has been 13 hired to consult closely with the others. And this 14 person comes to our meetings on a regular basis and 15 attends the Need For An Alternatives To meetings that 16 we've been involved in. And although it may not be 17 specifically written into the documents, the comments 18 and suggestions provided by the Elder's liaison 19 person is incorporated into the overall thinking as 20 to how we will look at things from a Needs For An 21 Alternatives To perspective. 22 MS. PHARE: Thank you. I just hope you can 23 appreciate that it's difficult for us on the other 24 side of this table here to know that when it's not in 25 the document. 875 1 MR. THOMAS: Well, as you may well know, we 2 come from a rich oral tradition. Not everything is 3 written down as is done in other societies. So we 4 have a tendancy to rely on a lot of unwritten 5 information as well. 6 MS. PHARE: It tended to get written down in 7 the Environmental Impact Statement though. 8 MR. THOMAS: We tried to do the best we can to 9 provide as much information as possible. 10 MS. PHARE: One of the things I was wondering 11 about is did your community specifically take a 12 decision to use traditional knowledge in this 13 process? Did you have a formal decision-making event 14 or process on that? 15 MR. THOMAS: Other than for Chief and Council 16 to make a decision, that when we start looking at the 17 possibility of doing another project within our 18 traditional territory, that we would engage in a 19 community-driven process. When we made that 20 decision, we expected that our people's input would 21 bring into consideration the use of our traditional 22 forms of knowledge and information. So in that 23 sense, yes. Did we go and have a referendum on the 24 issue? No. 25 MS. PHARE: I appreciate it's an awkward 876 1 question because this was the first time in 2 Manitoba's history that an assessment process has 3 involved traditional knowledge. And so some of my 4 questions are mostly trying to get clarification 5 about it, not meant in any form of disrespect. But 6 it's just the first time, so. 7 MR. THOMAS: I am glad that you make that 8 comment because you can see that our people have had 9 very extensive involvement in this whole process. 10 We're not just in the side lines or trying to see how 11 we can be involved, we are decision makers and we 12 have been throughout. 13 MS. PHARE: So your community was comfortable 14 with and specifically chose to share their 15 traditional knowledge with outsiders? 16 MR. THOMAS: From all indications, when we 17 conducted our workshops, our open houses, our opinion 18 surveys, when we had specific focus groups, meetings 19 with our Elders and other resource users in our 20 community, they provided us with that knowledge. And 21 from that, we take it that they don't mind sharing 22 that information. As a matter of fact, sometimes 23 they are willing to come forward and help to 24 substantiate what we're saying. 25 MS. PHARE: So you didn't find you needed any 877 1 form of data sharing agreement or releases or 2 anything like that given that the information was 3 going to be shared now with Manitoba Hydro and all of 4 their consultants and here with the Commission and 5 that kind of thing? 6 MR. THOMAS: We do have some sensitivities 7 that we're taking into consideration, i.e. the 8 location of specific sacred sites, the location of 9 sacred medicines that our people use. That knowledge 10 is something that we are very protective of and we 11 try and do the best we can to try and protect those 12 areas. 13 MS. PHARE: So does Manitoba Hydro have access 14 to that information or is that something you've 15 protected just within your community? 16 MR. THOMAS: We do provide that information 17 but we try and do it in a protective way. We do not 18 want outside interest to just come and go as they 19 please and do what they want with the locations. But 20 in terms of sharing information and knowledge with 21 Hydro, we do have to share that information in order 22 for us to think about how we could best mitigate or 23 avoid any impacts to those particular areas of 24 concern. 25 MS. PHARE: So you don't have an agreement, 878 1 say, yet with Manitoba Hydro or any of their 2 consultants that they are not to share it with 3 anybody else. There's nothing written down about 4 that as yet? 5 MR. THOMAS: Not in legally binding or written 6 form, no. But Hydro has been very respectful of our 7 concerns. And we do not expect them to do anything 8 that is untoward with regard to these areas of 9 concern. 10 MS. PHARE: I appreciate that. I'm not trying 11 to make an inference that they would, I'm just 12 referring to the need to protect the knowledge into 13 the future. 14 I was just wondering in that passage, I think 15 it's actually on page 175 but I'm not making a direct 16 quote, but you reference the fact that when western 17 science and traditional knowledge were used together 18 and they agreed with one another, then that didn't 19 present a problem. I guess the issue came when the 20 western science and traditional knowledge seemed to 21 look at the issue differently. And I think the 22 example you used was debris? You may have used a 23 debris example or it's written in one of the 24 documents where western science was of the opinion 25 that the debris resulting from flooding would stick 879 1 to the shore line and your Elders were of the opinion 2 that the debris would more float to the middle of the 3 lake. Do you recall that or am I -- no? 4 MR. THOMAS: I don't recall that specific 5 example. 6 MS. PHARE: You don't recall, okay. Well, I 7 don't need to rely on a specific example because you 8 did make the statement that at the times when western 9 science and traditional knowledge conflicted, that 10 what you did was include both answers or both 11 components in the EIS document. So you would 12 highlight. This is the two perspectives on this 13 issue. And that the way to deal with it was to adopt 14 a monitoring strategy, a monitoring program I guess 15 for that particular issue. Do I have that right? 16 MR. THOMAS: I can't recall the specific 17 statement that reflects what you're saying; however, 18 in my understanding of things, yes in general. If 19 there is an opinion that is to be extracted from 20 western scientific knowledge and also an opinion that 21 is to be extracted from traditional knowledge, if 22 there is a difference of opinion, then discussions 23 are had to see what is the best way to handle the 24 situation with a view towards trying to come up with 25 some sort of compromise to address the area of 880 1 concern. 2 MS. PHARE: So you were able to come up with a 3 compromise in every circumstance? 4 MR. THOMAS: Not in every circumstance. In 5 any negotiation that takes place, there's always some 6 give and take that occurs. And in one area, someone 7 will take one position and we'll take another 8 position. And then if we see an opportunity for 9 compromise, we'll head in that direction. If we 10 don't appear to be able to find a compromise within 11 that specific area, we look to other areas that may 12 be considered in exchange for taking a position that 13 may be more amenable to one side. 14 MS. PHARE: Mr. Thomas, what I'm getting at 15 here is what happens to the environmental impacts 16 that you haven't agreed upon? You made it very clear 17 on Monday that there were some circumstances where 18 you don't agree on what the environmental impact is 19 and your solution was to write it in the book and 20 demonitor it. And I'm wondering over the long term, 21 what happens to resolve the issue? 22 MR. THOMAS: Those areas of concern that are 23 brought about by differences of opinion are factored 24 into the overall discussions or negotiations. We do 25 have various procedures that are available for 881 1 resolving those kind of issues. One includes going 2 to Court which is usually a very time-consuming and 3 very expensive proposition. The other option that we 4 have for mediating those kind of situations is to 5 provide for an arbitration process that involves the 6 use of an arbitrator to make a decision one way or 7 the other as to how best to deal with a particular 8 issue. 9 And I can't off the top of my head think of 10 other examples but those are some that we work with. 11 MR. WOJCZYNSKI: Can I say something on that? 12 I agree with the things Mr. Thomas said and speaking 13 on behalf of Manitoba Hydro, because we've got two 14 players here, you are mentioning well what if the 15 western scientific knowledge and the traditional 16 knowledge come with two different perspectives. And 17 the example you used was the debris issue and that's 18 what Mr. Thomas was talking about. 19 Speaking on behalf of Manitoba Hydro, we have 20 already, both NCN and Hydro said there would be a 21 monitoring program. And if down the road, the 22 traditional knowledge was accurate and there was 23 going to be debris in an area where we didn't think 24 there was going to be debris and the monitoring 25 program would detect that, then we would, as a 882 1 project, go in and then act on the monitoring 2 information and, for instance, clean up that debris 3 or deal with it in whatever was the most appropriate 4 way to deal with it at that time. 5 And I agree with Mr. Thomas, that if worst 6 comes to worst, there are mechanisms in place to deal 7 with it. But on Hydro's side, we would be acting in 8 a responsible manner and doing whatever it was that 9 was appropriate at that time. So I think it would be 10 a rare circumstance that we'd have to go that far. 11 But I'd suggest that perhaps we're getting 12 into an area that's more and more into EIS and 13 perhaps it's more appropriate to wait for the EIS 14 panel but I leave that for our participant and the 15 Chair. 16 THE CHAIRMAN: Ms. Phare, while you're 17 thinking about that, the time is maybe appropriate 18 for a break. So if you have other questions to 19 follow with, I understand. Is it convenient at this 20 point to break? 21 MS. PHARE: Yes, I think so. 22 THE CHAIRMAN: Okay. Before we do, you 23 referred to a document a while ago. I believe it's 24 the Council on Environmental Cooperation. 25 MS. PHARE: Yes, the Commission for 883 1 Environmental Cooperation. 2 THE CHAIRMAN: For Environmental Cooperation. 3 Can we ask you to table one of the copies of this 4 document? 5 MS. PHARE: Yes, I can do that. 6 THE CHAIRMAN: And Mr. Grewar would then table 7 it as one of the exhibits. As well, may I ask 8 someone from the Hydro side to give us an indication 9 as to where Article 8 may be found in the filing? 10 MR. WOJCZYNSKI: We will get back to you. 11 We'll give you an undertaking on that. 12 THE CHAIRMAN: Thank you. 13 14 (UNDERTAKING MH-21: Advise where Article 8 is found 15 in the filing) 16 17 THE CHAIRMAN: Mr. Grewar, do you wish to file 18 any exhibits at this time? 19 MR. GREWAR: None at this time, Mr. Chairman. 20 Perhaps when we get back after the break if we've 21 received the document from Ms. Phare and also Hydro 22 will let us know at some point on that Article 8 item 23 you've inquired about. 24 THE CHAIRMAN: Thank you. In that case, we 25 will now break until about somewhere between 10 and 884 1 five to. 2 3 (PROCEEDINGS RECESSED AT 10:40 A.M. AND 4 RECONVENED AT 11:03 A.M.) 5 6 THE CHAIRMAN: It's Monday morning and people 7 have perhaps more difficulty in getting to speed 8 here. As the day progresses, hopefully we'll have 9 more efficiency. We've elasticized the length of 10 this break. 11 Mr. Grewar, you indicated that you may have 12 exhibits to file? 13 MR. GREWAR: Yes, Mr. Chairman. It's just in 14 reference to the document you requested from Ms. 15 Phare and CASIL which is Environmental Challenges and 16 Opportunities of the Evolving North American 17 Electricity Market. And it's produced by the 18 Secretariat Report to Council under Article 13 of the 19 North American Agreement on Environmental 20 Cooperation. And what we have is we have the cover 21 sheet and the reference page which is page 14 of the 22 document which is what Ms. Phare was referring to. 23 That we'll enter as the exhibit. The document itself 24 is readily available on line on the Internet at the 25 CEC website. And we will endeavour to ensure that we 885 1 obtain original copy. 2 THE CHAIRMAN: Thank you. 3 MR. GREWAR: This would be entered then as 4 CASIL 1001. 5 6 (EXHIBIT CASIL 1001: Cover sheet and page 14 7 of Environmental Challenges and Opportunities 8 of the Evolving North American Electricity 9 Market produced by the Secretariat Report to 10 Council under Article 13 of the North American 11 Agreement on Environmental Cooperation) 12 13 THE CHAIRMAN: As well, some of my colleagues 14 on the Panel have requested that we get some 15 clarification in terms of where or how they can 16 access the Voluntary Climate Change Report which has 17 been referred to. Mr. Wojczynski I believe made 18 reference to this document. 19 MR. WOJCZYNSKI: Yes, Mr. Chair, and I'll just 20 take one second to try and find that. But it was in 21 the, if I recall it correctly, it was in our filings 22 but I'd better double-check that. 23 You also had asked before the break where the 24 Article 8 could be found in the filings? 25 THE CHAIRMAN: Yes. 886 1 MR. WOJCZYNSKI: And Article 8 was part of the 2 CASIL evidence presented by CASIL, I don't know, six 3 weeks ago. I can't quite remember how long ago. 4 MS. PHARE: February 25th. 5 MR. DYSART: 15th. 6 MS. PHARE: February 15th. 7 MR. WOJCZYNSKI: I guess it isn't six weeks 8 although it seems like six weeks now. And we then 9 subsequently in our rebuttle provided a link to the 10 website that provides the whole agreement for greater 11 clarity for everybody whereas CASIL had provided 12 excerpts. But the Article 8 was in the original 13 CASIL evidence from February 15th. 14 THE CHAIRMAN: Thank you. 15 MR. GREWAR: Mr. Chairman, if I can just 16 provide some clarity to, and Mr. Wojczynski is 17 correct, it is CASIL Exhibit 0013 pre-hearing 18 exhibit. 19 THE CHAIRMAN: Thank you. And you will 20 clarify for us whether the voluntary climate change 21 report is already within the exhibits filed. 22 MR. WOJCZYNSKI: Yes, I am double-checking 23 that. 24 THE CHAIRMAN: That's fine. 25 MR. WOJCZYNSKI: Whether it's in there or not. 887 1 We will take that as an undertaking. 2 THE CHAIRMAN: Thank you. 3 4 (UNDERTAKING MH-22: Advise whether the Voluntary 5 Climate Change Report is already within the exhibits 6 filed) 7 8 THE CHAIRMAN: Can we go back to the questions 9 with CASIL? 10 MS. PHARE: Okay. I would just like to 11 confirm that the question that we ended on just 12 before the break, that it's okay with us. It dealt 13 with the decision-making process that the 14 co-proponents undertook in a conflict between Western 15 Science and Traditional Knowledge and Mr. Wojczynski 16 suggested that it be moved to the Environmental 17 Impact Statement section and we are prepared to do 18 that if that's all right. 19 Okay. My last series of questions deal with 20 Councillor Thomas' statements here dealing with their 21 consultation with your community. In particular, you 22 had stated that you have engaged in meaningful 23 consultation with your community on this project 24 throughout its development and will continue to do so 25 prior to it actually being implemented. 888 1 And so I wanted to confirm, because you did 2 also mention just now in questioning about your 3 community's reliance upon or use of some of the 4 western law. You have referred to Section 35 of the 5 Constitution that protects your rights, Aboriginal 6 and Treaty rights. Actually recognizes and affirms 7 them. So I'm just trying to get some clarification 8 on what you meant when you were saying that you were 9 meaningfully consulting with your community members. 10 Are you referring to the activities you have 11 engaged in so far on the Need For An Alternatives To 12 and the Environmental Impact Statement discussions 13 whereby you got environmental information and process 14 information and that kind of thing? Is that what you 15 mean by meaningfully consulting with your community 16 members? 17 MR. THOMAS: When I say that we've been 18 involved in community consultation, as I've indicated 19 previously, we're talking about a process that is 20 community driven. We take direction from our people 21 as to what it is that they want us to look at. And 22 within that context, we've tried to ensure that we do 23 have meaningful community representation in our 24 process in order for that information to be much more 25 available to people who have been hired to consult 889 1 with the community. 2 These people are our own community members 3 which also includes two employees with South Indian 4 Lake. So we include them in our process. And when 5 we are involved in the discussions and negotiations 6 with Hydro as we look to all these different areas of 7 concern, we provide that information to our people as 8 best we can. And it's an ongoing process. 9 We had been involved in the provision of 10 information for a number of years now. And we are 11 planning to continue to carry on that way of 12 communicating with our community. 13 MS. PHARE: So to clarify, you were engaged in 14 those discussions with your community for the 15 purposes of producing essentially the 10 linear feet 16 of binders, the material that's necessary for the 17 review of the project essentially, right? 18 MR. THOMAS: Yes. We've even had -- we've 19 even ensured that it is our own people that were 20 hired, to make sure that they were involved in 21 assisting the many different experts that look in 22 particular areas, to ensure that we did have our 23 traditional knowledge component included in the 24 overall scheme of things. 25 MS. PHARE: And I guess the additional piece 890 1 would be consulting with them about the deal, the 2 final economic partnership I suppose. 3 MR. THOMAS: That will be a part of it, yes, 4 and it has been since we started. 5 MS. PHARE: Okay. 6 MR. THOMAS: I should also point out that many 7 of the consultants that are here are NCN people, that 8 they are members, but we also have other consultants 9 that work for us. As I indicated previously, we 10 developed a joint process with joint decision making 11 as to who the consultants will be from the many 12 different areas that are being looked at. And those 13 people work for both NCN and also Hydro. Hydro may 14 have some of its own as well but it's all a team 15 effort. 16 And so when we share information about 17 traditional knowledge, it's done within that context. 18 MS. PHARE: So you haven't been engaging in 19 consultations with your people about their Treaty and 20 Aboriginal rights that are protected by Section 35 is 21 what you're saying? 22 MR. THOMAS: There is a consultation process 23 that we involve ourselves in to ensure that all our 24 rights are protected. So we have talked about those 25 kind of issues, share that information with our 891 1 people. In addition, I believe the Federal 2 Government of Canada has an obligation or has a duty 3 to consult with the First Nations people whenever 4 there's potential for impacts on their Treaty and 5 Aboriginal rights. And that's I believe a Section 35 6 consultation process. And that's something that is 7 being undertaken by the Federal Government. 8 MS. PHARE: So you, as NCN government, are in 9 the middle of that consultation right now? Is that 10 what you're saying? 11 MR. THOMAS: We are involved in that process 12 as well. 13 MS. PHARE: So in this particular 14 circumstance, you're acting as the proponent of the 15 Wuskwatim project and you're also acting as the 16 government of the NCN people that are being consulted 17 with by Manitoba and the Federal Government; is that 18 correct? 19 MR. THOMAS: As First Nations people, in 20 particular leaders, we do have to wear many hats 21 quite often. And so we have a lot of obligations 22 that we have to satisfy as elected officials. 23 MS. PHARE: How far through the Treaty and 24 Aboriginal Rights consultation are you? 25 MR. THOMAS: I believe Barb Connell is the 892 1 person who is in charge of that particular area. We 2 have advised her that the consultation processes that 3 we have undertaken as NCN is not something to be used 4 in place of their duty to consult with our people. 5 So we've provided instructions to her accordingly. 6 And there's been -- I don't remember exactly where 7 it's at but it's in progress right now. 8 MS. PHARE: So you don't recall -- like have 9 you personally, as the person, as the councillor in 10 charge of this project, future development, have you 11 spoken personally with Ms. Connell who is conducting 12 the Treaty and Aboriginal Rights consultation? 13 MR. THOMAS: Yes. 14 MS. PHARE: And so are you expressing -- 15 MR. THOMAS: To instruct her that the federal 16 duty to consult is not something that we're doing. 17 MS. PHARE: Right. 18 MR. THOMAS: What we're doing is all good but 19 for the Federal Government not to use that and say 20 that, okay, this process had been undertaken, 21 therefore the duty to consult requirements have been 22 satisfied. 23 MS. PHARE: Okay. 24 MR. THOMAS: They have to carry through with 25 their own process and they've been instructed to do 893 1 so accordingly. 2 MS. PHARE: Yes? 3 MR. THOMAS: And they've been instructed to 4 ensure that in doing so, that they also include our 5 future development team, more in particular my 6 co-managers Marcel Moody and Norman Linklater. 7 MS. PHARE: So do you have any idea when that 8 process is going to end? By that process, I'm 9 referring to the Treaty and Aboriginal Rights 10 consultation? 11 MR. THOMAS: We hadn't come up with any final 12 dates; however, I would expect that it would be in 13 keeping with our expectation to have a referendum 14 vote on the PDA. Hopefully, prior to that, they will 15 have completed their consultation. And the time that 16 I indicated previously was late August, early 17 September. 18 MS. PHARE: And do you have any indication of 19 whether there are any Treaty or Aboriginal Rights 20 infringements issues that your community or any of 21 your community members are concerned of yet? 22 MR. THOMAS: The issues of concern that we've 23 identified within our process are the issues that 24 we're dealing with. And if there are any other 25 issues that we may need to concern ourselves with, we 894 1 will look at those issues. 2 MS. PHARE: So I guess that's no? 3 MS. MATTHEWS LEMIEUX: If I could for a 4 minute. He responded to the question and he didn't 5 give a no, so. 6 THE CHAIRMAN: Well, the question was asked. 7 I think Mr. Thomas knows how he wants to answer. He 8 can answer yes, no or other ways too so it's up to 9 him. 10 MR. THOMAS: You have asked quite a few 11 questions. Could you clarify which question you were 12 asking? 13 MS. PHARE: Well, I can reframe my last 14 question if that's what you're -- okay. Have any 15 community members expressed to you, as of this point, 16 any Treaty or Aboriginal Rights concerns? 17 MR. THOMAS: We have -- one of my colleagues 18 always expresses concerns about any potential impacts 19 upon our Treaty and Aboriginal Rights. And he has 20 been involved in our process quite extensively. And 21 within that context, we do have Treaty and Aboriginal 22 Right issues being brought forward that will have to 23 be discussed. 24 MS. PHARE: So you are intending sometime 25 between now and August in bringing those forward, 895 1 those issues forward to the Federal and Provincial 2 Governments? 3 MR. THOMAS: If we have any cause for concern 4 with respect to any infringement of our Treaty and 5 Aboriginal Rights, yes, we do intend to address those 6 areas of concern. 7 MS. PHARE: And I guess you would intend on 8 having those, if they are infringements, fully 9 compensated before the agreement is voted on or the 10 process or the proposed compensation agreement I 11 guess would include Treaty and Aboriginal Rights; is 12 that what you're saying? 13 MR. THOMAS: We will have a process in place 14 to address those issues of concerns, yes. 15 MS. PHARE: Prior to the vote? 16 MR. THOMAS: Prior to the vote, yes. 17 MS. PHARE: Okay. Have any of your community 18 members expressed any concern about the fact that in 19 this particular circumstance, you are acting as both 20 the co-proponent of a project and also the government 21 that is in a position to be protecting the community 22 rights and acting in the best interests of the 23 community? Has anybody seen that as a conflict of 24 interest in your community? 25 MR. THOMAS: As I indicated previously, we do 896 1 live in a democracy and in a democracy, you will have 2 those who are for and those who are against. And 3 some may identify issues that they think are relevant 4 for their particular position. 5 And in our situation, yes, those kind of 6 issues have been brought forward. They had been 7 brought forward via a number of different avenues. 8 Some will ask us directly and others will ask others 9 to ask on their behalf. There are some groups that 10 are being -- that may be asked to ask certain 11 questions from me or from Chief and Council or from 12 our team that are intended to bring forward these 13 kind of issues. 14 But in terms of any potential for conflict of 15 interest, we always ensure that we have legal 16 representation available in order to address any 17 conflict of interest issues that may arise now and 18 again. And we involve ourselves in the process to 19 divest ourselves of any conflict of interest. 20 MS. PHARE: So what do you think you're going 21 to do if it ends up that you, as co-proponent, NCN as 22 co-proponent is impacting the Treaty and Aboriginal 23 Rights of your own members? Are you going to 24 compensate yourself or how is that going to work? 25 MR. THOMAS: As I indicated previously, we 897 1 must engage in a process to justify any infringement 2 upon any Treaty and Aboriginal Rights. And if the 3 partnership that we have developed is going to do 4 such a thing, then we will have to involve our 5 people. And we are involving our people in our 6 process. 7 So that helps to address the conflict of 8 interest issue in particular in that it's not just 9 going to be Chief and Council that make the 10 decisions, it's going to be the community as a whole. 11 And the community will decide whether or not a 12 certain infringement upon their Treaty and Aboriginal 13 Rights is being satisfactorily dealt with via the 14 process that we have undertaken. 15 MS. PHARE: Okay. Those are all of my 16 questions. Thank you. 17 THE CHAIRMAN: Thank you, Mrs. Phare. Mr. 18 Dysart, did you have additional questions? 19 MR. DYSART: Maybe just one question going 20 back to my original line of questioning in regards to 21 the future vote for the Power Development Agreement. 22 The Corbier decision between Corbier and Canada, the 23 Supreme Court decision, is that applicable to that 24 voting process? 25 MS. MATTHEWS LEMIEUX: Excuse me, he's asking 898 1 for a legal opinion in terms of the response to that 2 question. And we would take the position that that 3 is not appropriate. 4 MR. DYSART: I'll rephrase my question. 5 THE CHAIRMAN: He'll rephrase his question I 6 am told. 7 MR. DYSART: Has NCN leadership reviewed the 8 possibility of Corbier being applicable? 9 MR. THOMAS: It's a question that I don't mind 10 answering. The Corbier decision was made by the 11 Supreme Court to recognize that off-reserve members 12 have the right to vote for their Chief and Council. 13 We, as a community, were involved in a process 14 whereby we created our own election code. And this 15 was done prior to the decision, the Corbier decision. 16 We felt that it was the right thing to do as a First 17 Nation community that we involve all NCN members in 18 our elections. And we have included all NCN members 19 in our referendums. 20 So we will be including all NCN members in our 21 referendum when it comes time to making a decision 22 for the PDA, including all members from South Indian 23 Lake. Unless of course they are successful in their 24 attempt to become their own separate First Nation. 25 If they do so before the vote, then that will be a 899 1 different story. 2 MR. DYSART: Thank you, Mr. Chairman. I have 3 no further questions. 4 THE CHAIRMAN: Thank you. 5 MR. WOJCZYNSKI: I have an undertaking. You 6 had requested briefly ago as to where the VCR report, 7 the Climate Change Response Report, could be found in 8 the filing. It was referenced in the original filing 9 but the report itself was contained in response to 10 interrogatory Canadian Nature Federation NFAAT round 11 one question 375-D. And that was the 2003 Manitoba 12 Hydro VCR report. 13 THE CHAIRMAN: Did you get that reference? 14 MR. GREWAR: Sorry, it's CNF? 15 MR. WOJCZYNSKI: Sorry, Canadian Nature 16 Federation NFAAT round 1 375-D. And that was the 17 2003 Manitoba Hydro VCR report. 18 THE CHAIRMAN: I will now call upon the 19 Consumers Association of Canada and Manitoba Society 20 of Seniors. 21 MR. GREWAR: Mr. Chairman, I wonder just while 22 Mr. Williams is setting up, I might extend an 23 apology. When I was entering an exhibit, I referred 24 to the correspondence from Nisichawayasihk Cree 25 Nation and I indicated that it was addressed to 900 1 TANSI, T-A-N-S-I. That apparently is a greeting as 2 opposed to an identity. My apologies. I did not 3 understand that. I just would like that on record. 4 My mistake. 5 THE CHAIRMAN: Thank you, Mr. Grewar. 6 MR. WILLIAMS: Good morning, Mr. Chair, 7 members of the Panel. My name is Byron Williams. I 8 am an attorney with the Public Interest Law Centre. 9 To my right is Mr. Bill Harper from the firm of 10 Econalysis Consulting. Also in attendance today from 11 my client base among the eight to 10,000 members of 12 the Society of Seniors and the Consumers Association. 13 In the first row near the door is Ms. Gloria 14 Desorcy who is Executive Director of the Consumers 15 Association. Beside her, I think is Mr. Chuck Cruden 16 who is a member of the Manitoba Society of Seniors. 17 And beside him is the brains of the Cruden family, 18 Ms. Eileen Cruden who is also a member of the 19 Manitoba Society of Seniors. 20 Mr. Chairman, for the benefit of the Panel and 21 for the Manitoba Hydro, what we have done on behalf 22 of our clients is draw a book of references which is, 23 with one exception, taken from the record of this 24 proceeding. I believe in there as well is one 25 excerpt from the 03 integrated financial forecast of 901 1 Manitoba Hydro. 2 My understanding is that Mr. Grewar has shared 3 a copy of this document which has a purple back cover 4 with the Panel and with Board advisors. And we've 5 also provided that to Hydro. 6 Members in the audience, I can indicate that 7 there are a few of these top selling articles over by 8 the PA system on the table there. So there are some 9 available for people in the crowd who just can't get 10 enough of a net present value and an internal rate of 11 return. That would be Mr. Wojczynski and myself I 12 think are probably the only two people in the room, 13 perhaps Mr. Harper. 14 MR. WOJCZYNSKI: Ms. Lyn Wray loves them as 15 well. 16 MR. MAYER: We're hoping our accountants are 17 watching, too. 18 MR. WILLIAMS: I can also indicate and we'll 19 get to these in the course of our discussion and 20 examination. We have provided some exhibits, 21 potential exhibits to Manitoba Hydro, Mr. Grewar. I 22 believe they've had an opportunity to review them as 23 well as to NCN. I'll come across them in the course 24 of our examination and try and introduce them and I 25 guess we'll see if Hydro has any objections to that. 902 1 If they don't, we'll ask Mr. Grewar to distribute 2 them at that time. 3 And again, for members of the audience, I can 4 indicate that unlike the Commission, you can look at 5 our exhibits any time you want and they are also on 6 the table back there. 7 Councillor Thomas, you've been a busy man 8 today. And I don't have very many questions for you 9 but because I don't have very many questions for you, 10 I thought I'd start out with some questions to NCN 11 who is co-proponent for this project. And I'll 12 direct you to the question in a second but 13 essentially, my clients are interested in determining 14 what NCN is looking for out of this project and what 15 its objectives are. 16 And I direct your attention to the Book of 17 References that we have provided you. And if you go, 18 Councillor Thomas, to tab 1, the very first page. On 19 the right-hand side, you'll see page 276. And I'll 20 direct your attention, Councillor Thomas, to about 21 line 9 and 10 of that transcript. And it's you 22 talking there. And you indicate that we have focused 23 on -- well, I'll read the start of the sentence. 24 "If you will note from all the 25 presentations that have been done, we 903 1 have focused on three main areas." 2 Do you see that, Councillor Thomas? 3 MR. THOMAS: Yes. 4 MR. WILLIAMS: And you number one of the 5 areas, one of them being employment and training. 6 And as I read that paragraph and the one that 7 followed it, it seemed to me that the other two key 8 areas that you were focusing on was appearing at line 9 22 of page 276. Your efforts to secure the 10 contracts, the direct contracts where we could do 11 some of the work that is going to be needed for the 12 project. Is that right? That would be the second 13 area that you would be focusing on, Councillor 14 Thomas? 15 MR. THOMAS: Yes. 16 MR. WILLIAMS: And again, the subsequent 17 sentence says, 18 "And we have also come to a point 19 where we have asked -- also asked for 20 some ownership." 21 And I am presuming that's item number 3 of the three 22 areas that you are concentrating on; is that right? 23 MR. THOMAS: Yes. 24 MR. WILLIAMS: And as I tried to read your 25 comments along with those of Chief Primrose, it 904 1 seemed to me that what you were saying is that the 2 areas of job opportunities and training, business 3 opportunities and contracts and a share of ownership 4 were essentially three pillars of what Chief Primrose 5 describes at page 31 of the transcript as your dream 6 of self-sufficiency. That's on the next page if 7 you're looking for it, Councillor Thomas. 8 Would that be fair, that the three main 9 objectives for NCN of this project are those and they 10 lie at the core of the community's dream of 11 self-sufficiency? 12 MR. THOMAS: Just to provide some 13 clarification on the comment made by the Chief. The 14 Wuskwatim project in and of itself with the so-called 15 three pillars that you say are there, I have 16 identified them as employment and training, business 17 opportunities and shared ownership of the project. 18 Those are the three primary areas that we're looking 19 into. 20 But to categorize them as our dream of 21 self-sufficiency as the end all be all is not 22 appropriate. The Wuskwatim project is but one aspect 23 to who we are as a First Nation community and we 24 looked to more things other than just the Wuskwatim 25 project to satisfy our dream for self-sufficiency. 905 1 MR. WILLIAMS: In essence, the Wuskwatim 2 project is a means to an end, one of the means to an 3 end? 4 MR. THOMAS: It is one of the means. 5 MR. WILLIAMS: And I understand that the 6 Wuskwatim project is one of the means to an end in 7 terms of this dream for self-sufficiency. Along with 8 that, there is a recognition that you want the 9 proposal to be operated in a manner that is 10 respectful of the environment; is that right? 11 MR. THOMAS: Yes, those are the instructions 12 that we have received from our people and I believe 13 that we have satisfied that concern. 14 MR. WILLIAMS: And at the end of the day, your 15 position is that it will be up to your people to 16 decide whether those three pillars in conjunction 17 with the environmental impacts of the project are 18 sufficient and appropriate from your community's 19 objectives; is that right? 20 MR. THOMAS: Only speaking from our 21 community's perspective, yes. 22 MR. WILLIAMS: And that's from your 23 community's perspective? 24 MR. THOMAS: Yes. 25 MR. WILLIAMS: Now, I wonder, Councillor 906 1 Thomas, if you can turn to tab 2 of the Book of 2 Reference and in particular to page 109. That would 3 be the second full page in and page 109 is in the 4 bottom right-hand corner. And I will direct your 5 attention to lines 18 to 21. And you'll have to take 6 my word on this but you'll accept, subject to check, 7 that this is a quote from Mr. Wojczynski. And he 8 goes, 9 "Moving onto that economic stimulus 10 that I have referred to as a byproduct 11 remembering that the primary economic 12 drive for Manitobans is that," 13 he's missing a word, 14 "it will provide profits." 15 Do you see that, Councillor Thomas? 16 MR. THOMAS: I beg your pardon? 17 MR. WILLIAMS: Do you see that quote, 18 Councillor Thomas? 19 MR. THOMAS: Yes. 20 MR. WILLIAMS: Now, I don't want to 21 oversimplify this but you will note that from the 22 perspective of Manitoba Hydro, the primary economic 23 drive for this project is to provide profits, 24 correct? 25 MR. THOMAS: From what the comment says, yes. 907 1 MR. WILLIAMS: And the economic stimulus is 2 being referred to as a byproduct, albeit an important 3 byproduct. Would that be fair? 4 MR. THOMAS: Yes. 5 MR. WILLIAMS: And you spoke just a few 6 minutes ago about your community's perspective. And 7 I take it, given the three pillars that we spoke of 8 previously, the jobs and training opportunities, the 9 opportunities for business as well as the opportunity 10 for revenues from the project, you would see the 11 economic stimulus provided by Wuskwatim as being more 12 than a mere byproduct of a drive for profits; is that 13 fair? 14 MR. THOMAS: It will certainly have an impact 15 to our community and a significant one at that. But 16 the desire to make profit from this project is a 17 driving force. And one of the very significant 18 byproducts will be that it will provide for an 19 economic stimulus for our First Nation. 20 MR. WILLIAMS: So you would consider the 21 economic opportunity, jobs and training opportunity 22 as being of less importance than the opportunity to 23 maximize profits? 24 MR. THOMAS: The way that we look at things as 25 First Nations people is that everything is connected 908 1 to everything. We don't necessarily categorize 2 things in a hierarchical fashion and say that this is 3 more important than the other. Everything is 4 important. That's generally the perspective that our 5 people comment about the way they look at things. 6 And so I wouldn't say that profit is more 7 important than jobs. They are just as important. 8 One is just as important as the other. 9 MR. WILLIAMS: Thank you for that, Councillor 10 Thomas. What we're really saying is whereas Hydro 11 may classify profits first with economic 12 opportunities slightly below that, your community 13 doesn't look at things in such a hierarchy. So you 14 would give more weight, perhaps, to economic 15 opportunity than Hydro would; would that be fair? 16 MR. THOMAS: Could you repeat the question 17 again, please? 18 MR. WILLIAMS: I think I'll try a different 19 one. The point is simple, Councillor Thomas. 20 Profits and economic opportunities are important to 21 both, correct? 22 MR. THOMAS: Yes. 23 MR. WILLIAMS: Both Hydro and Nelson House. 24 It may be that given your world view, you put more 25 emphasis on economic opportunity than Hydro does from 909 1 your perspective, correct? 2 MR. THOMAS: Again, I'm not quite sure where 3 you're coming from on this question. We, as First 4 Nations people, do not close the door on making money 5 as much as possible. You will find that in most 6 First Nations communities, we are in very sore need 7 of that resource. And so if there's an opportunity 8 for us to make a profit, we'll definitely look at it 9 in a favourable perspective. And we won't say that 10 we think profit is more important than the way Hydro 11 sees it or the way Hydro sees it is more important 12 than the way we see it. 13 It is a very important component to us as 14 First Nations people. I for one will not make any 15 efforts to lead my people into a situation where 16 we're not going to be making any money. 17 MR. WILLIAMS: Thank you, Councillor Thomas. 18 And just from the perspective of the Public Interest 19 Law Centre, I can assure you that we're always 20 looking at ways to make money, too. So I understand 21 your perspective on that as well. 22 Mr. Adams, I don't think I'm going to have 23 very many questions for you either but I thought I'd 24 give you a chance to speak as well at the start. And 25 just for the benefit of you, Mr. Adams, and I saw you 910 1 peeking through the transcript or the Book of 2 References earlier today. And for the Panel, I'll 3 just refer you to tab 3 of the Book of Reference, 4 being page 569 of the transcript from March 3, 2004. 5 And Mr. Adams, before I ask any questions, I 6 want to talk to you very briefly about the subject of 7 wind development and I want to emphasize it briefly 8 because I will embark upon a discussion in terms of 9 wind development later with some trepidation. 10 But I wanted to follow up on a conversation 11 you had with Mr. Abra. And as I understand it, 12 starting at page 568 but moving on to page 569, in 13 the context of wind development, you were discussing 14 the prospect of Hydro either (A) purchasing 15 wind-generated electricity from a non utility 16 generation, or NUG; or (B) engaging in a joint 17 venture with regard to wind; or (C) solely owning the 18 development. Do you recall that conversation, Mr. 19 Adams? 20 MR. ADAMS: I do. 21 MR. WILLIAMS: And as I understand that 22 conversation and as repeated in this transcript 23 reference, I understand that what you were saying is 24 that over the short term, the economics of 25 undertaking wind development may look a lot better 911 1 from the perspective or the viewpoint of a company 2 like Shell or Sequoia than they might from the 3 viewpoint of Manitoba Hydro; is that right? 4 MR. ADAMS: Yes. 5 MR. WILLIAMS: So at this point in time, wind 6 development may look better from the perspective of a 7 private company as opposed to a Crown Corporation 8 such as Hydro; is that fair? 9 MR. ADAMS: At this stage in the evolution of 10 the wind program, yes. 11 MR. WILLIAMS: And as I was trying to 12 understand kind of what was underlying your 13 reasoning, I broke it down into three parts. And 14 I'll try and provide them to you and then you can 15 comment on them, Mr. Adams. 16 First of all, one part of it. Your view was 17 that currently at this point in time, wind is not 18 economic absent subsidy; is that correct? 19 MR. ADAMS: Yes. 20 MR. WILLIAMS: And secondly, that private 21 companies which are in the position first of all in 22 terms of being able to take advantage of subsidies 23 from the Federal Government, and secondly, may have 24 the opportunity to take advantage of the proposed 25 CRCE for equipment such as wind turbines, they may be 912 1 better positioned than Hydro; is that fair? 2 MR. ADAMS: I think we're in an equal position 3 to get the direct subsidies. But a private company 4 is more likely to be in a position to take advantage 5 of the CCA rates than we are. 6 MR. WILLIAMS: And that's because Manitoba 7 Hydro does not pay corporate income tax? 8 MR. ADAMS: Yes. 9 MR. WILLIAMS: So that would be the third 10 element that I was referring to. So that's 11 underlying your perspective or your viewpoint that 12 Manitoba Hydro, at this point in time, is in a less 13 advantageous position than a private company in terms 14 of developing wind; is that right? 15 MR. ADAMS: Not necessarily all private 16 companies but as long as the company is in a position 17 to take advantage of the tax break, yes. 18 MR. WILLIAMS: So just in terms of that point, 19 the reason that Hydro is in a different position than 20 some private companies are in, who have an 21 opportunity to take care of the -- have the 22 opportunity to take advantage of the tax break is 23 (A), by virtue of the nature of the product in the 24 sense that wind power is currently not economic; and 25 (B), by nature of the fact that Manitoba Hydro is a 913 1 Crown Corporation; is that right? 2 MR. ADAMS: Yes. 3 MR. WILLIAMS: I wonder if I can turn you to 4 tab 4 of the Book of Reference and there is a 5 document. It's an excerpt from interrogatory PCN 6 first round NFAAT 2A item 4 of 6. And the title is 7 Report on Development of a Gas Fired CT Generation at 8 Brandon. Do you have that, sir? 9 MR. ADAMS: Yes, I do. 10 MR. WILLIAMS: And the reason I turn you to 11 this, Mr. Adams, is I guess -- well, in the case of 12 wind, it looked better from the perspective of a 13 private company. With reference to the Brandon gas 14 fired CT generation, in that specific instance the 15 deal was more economically viable from the 16 perspective of a Crown corporation. Would that be 17 fair? 18 MR. ADAMS: Yes. 19 MR. WILLIAMS: And in that case, and it's set 20 out in particular in the second page under tax 21 status, Hydro concluded that its preferred tax 22 treatment provided for lower development and debt 23 service clause; is that right? 24 MR. ADAMS: Yes. 25 MR. WILLIAMS: And that put it in an 914 1 advantageous position when compared to a partnership 2 or even a purchase agreement through a NUG; is that 3 correct? 4 MR. ADAMS: In the case of a gas turbine, yes. 5 MR. WILLIAMS: So in terms of looking at the 6 economic viability of projects, one has to be 7 conscious of the particular circumstances of the 8 particular entity making the calculation. And let me 9 rephrase that. In certain cases, a project may look 10 good to a private company but not to Hydro. In other 11 cases, it might look good to Hydro but not to a 12 private company; is that correct? 13 MR. ADAMS: Yes, it is. Let me rephrase that. 14 It may look better to a private company -- it may 15 look good to both of us but it may look better to one 16 or the other depending on the circumstances. 17 MR. WILLIAMS: Fair enough. Thank you for 18 that elaboration. And there may be cases in fact 19 where a project looked good from the perspective -- 20 it might look good to a private company and not good 21 at all to Manitoba Hydro based on their 22 circumstances? 23 MR. ADAMS: Yes. 24 MR. WILLIAMS: So if you were evaluating the 25 economic viability of a project, you'd be crazy to 915 1 look at it from the perspective of a private sector 2 company instead of your own perspective, is that 3 right, solely from the perspective of a private 4 sector company? 5 MR. ADAMS: I don't know that we'd be crazy 6 but it's not something we would do. 7 MR. WILLIAMS: It would be imprudent business 8 practice I'm sure you would agree? 9 MR. ADAMS: Yes. 10 MR. WILLIAMS: Mr. Chairman, I have a very 11 kind of tedious section coming up that's likely to 12 take about 45 minutes so I'm at your discretion. But 13 rather than grinding my friends through, I think it 14 wouldn't be a bad time for a break. 15 THE CHAIRMAN: And you are telling me that 16 that very tedious 45 minutes cannot be preceded by 17 another 15 very interesting moments? 18 MR. WILLIAMS: It would be rare that you would 19 find 15 interesting moments in any of my examination 20 today, Mr. Chair. And certainly -- 21 THE CHAIRMAN: I wouldn't make that judgment. 22 I found this pretty interesting so far. 23 MR. WILLIAMS: And the order is kind of 24 designed in a certain area. So if I could, Mr. 25 Chair, I think this would be a good time to sit down. 916 1 THE CHAIRMAN: Thank you. Yes, Mr. Cormie? 2 MR. CORMIE: Thank you, Mr. Chair. I have 3 some follow-up information from last Wednesday 4 evening. Mr. Abra had asked me about reservoir 5 draw-down limits. And I wanted to put on the record 6 some additional information. I had stated that we 7 had limits only at three of our lower Nelson plants 8 and those were geotechnical limits. We have those 9 similar limits at most of our Hydro stations with 10 regard to geotechnical limits. 11 In addition to that, under our comprehensive 12 implementation agreements with Nelson House, York 13 Factory and Split Lake, there are maximum draw-down 14 rates that are specified. And if water levels are 15 drawn down at a rate greater than those specified, 16 Manitoba Hydro is required to pay predetermined 17 compensation. 18 A third area with regard to draw-down then is 19 that in our annual augmented flow program, there is a 20 limit set on the draw-down of South Indian Lake of 21 four and a half feet. And that draw-down shall be 22 implemented gradually. 23 I hope with that additional information, I've 24 covered all the areas on draw-down that affects our 25 system operation. 917 1 THE CHAIRMAN: Mr. Abra, do you have follow-up 2 questions on that? 3 MR. ABRA: I might, Mr. Chairman, once I have 4 a chance to review it. 5 THE CHAIRMAN: Okay. Now it's with some 6 trepidation that I'm going to ask if there are others 7 who have interesting comments to add at this time. 8 MR. CORMIE: More interesting than mine? 9 THE CHAIRMAN: I make no judgment call on 10 that. If there aren't and, Mr. Grewar, no comments 11 either, then we'll break for lunch. We reconvene at 12 one o'clock. 13 14 15 (PROCEEDINGS RECESSED AT 11:55 A.M. 16 AND RECONVENED AT 1:00 P.M.) 17 18 THE CHAIRMAN: All right, ladies and 19 gentlemen, we shall carry on. The word is to you, 20 Mr. Williams. 21 MR. WILLIAMS: Thank you, 22 Mr. Chairman, members of the panel. 23 Ms. Wray, I know that you are hurt by 24 the fact that I didn't ask you questions before 25 the lunch hour, so we are going to start with you 918 1 in the afternoon. And I will ask you to turn to 2 tab 5 of the book of references, and the first 3 page on that tab should read attachment 7, table 4 A.21, with the heading "projected operating 5 statement." 6 Do you have that, Ms. Wray? 7 MS. WRAY: Yes, I do. 8 MR. WILLIAMS: Now in this tab, 9 Ms. Wray, perhaps you can confirm, are tables A.21 10 to A.24, which are the projected operation 11 statements for Manitoba Hydro's electricity 12 operations under the low and high export price 13 scenarios for each of the Wuskwatim generating 14 station in service being 2009 and 2020; is that 15 right? 16 MS. WRAY: Yes. 17 MR. WILLIAMS: And A.21 speaks to the 18 projected operating statements in terms of the 19 2009 low price scenario, and table A.22 speaks to 20 the 2020 low price scenario; is that correct? 21 MS. WRAY: Yes. 22 MR. WILLIAMS: Again, table A.23 23 speaks to the 2009 high price scenario, with table 24 A.24 speaking to the 2020 high price scenario; 25 correct? 919 1 MS. WRAY: Yes. 2 MR. WILLIAMS: I don't want to go into 3 a lot of detail on this, but in order to establish 4 a reasonable set of boundaries to cover the likely 5 ranges of export prices, Hydro has developed a 6 high and low forecast, in addition to the expected 7 price forecast; is that right? 8 MS. WRAY: Yes. 9 MR. WILLIAMS: Again, without going 10 into great detail, in Hydro's view, the high and 11 low forecast each have a relatively low 12 probability of occurrence; is that right? 13 MS. WRAY: That's correct. 14 MR. WILLIAMS: I wonder if you could 15 turn to table A.22, which we have confirmed shows 16 the projected financial results under the low 17 export price scenario for Wuskwatim; is that 18 correct? 19 MS. WRAY: Yes. 20 MR. WILLIAMS: And if you can keep 21 your finger on that, as well as table A.24, which 22 shows the results under the high export forecast 23 for the 2020 date, and I guess where I would like 24 you to turn on the first page of A.22 is the sixth 25 line from the bottom, you will see the heading 920 1 "percent increase"; do you see that? 2 MS. WRAY: Yes. 3 MR. WILLIAMS: And that represents -- 4 as you go along that column you will see the first 5 number there is 2 percent in 2005 -- and that line 6 represents the percent rate increase assumed for 7 that year; is that right? 8 MS. WRAY: Yes, these are percent rate 9 increases assumed in the projections. 10 MR. WILLIAMS: My understanding is 11 that the increases for the 11 years between 2003 12 and 2013 are taken from IFF02-1; is that right? 13 MS. WRAY: That's correct. 14 MR. WILLIAMS: After 2013, for 15 purposes of projections, rates are adjusted 16 annually to maintain an interest coverage ratio of 17 1.15 percent; correct? 18 MS. WRAY: That's correct. 19 MR. WILLIAMS: And we can see that as 20 you go along the table from 2013 on, down a couple 21 of lines, we see the interest coverage ratio is 22 1.15 all of the way out; correct? 23 MS. WRAY: Yes. 24 MR. WILLIAMS: Now, going one line 25 below the percent increase, we see something which 921 1 is titled "cumulative percent increase." Do you 2 see that? 3 MS. WRAY: That's correct. 4 MR. WILLIAMS: And this measures the 5 cumulative impact of rates over the years. For 6 example, if we have 2 percent rate increases in 7 2005, 2006, and 2007, the cumulative percentage 8 impact increase would be 6.1 percent; correct? 9 MS. WRAY: Yes. That is the nominal 10 cumulative effect of taking the line above it and 11 accumulating them. 12 MR. WILLIAMS: Now, if you just turn 13 your attention to the third line from the bottom 14 which reads "debt equity ratio," and you would 15 agree with me that along with interest coverage, 16 the debt equity ratio would be one of the first 17 things that a bond rating company would look at; 18 is that right? 19 MS. WRAY: Yes. 20 MR. WILLIAMS: It is an important 21 measure of corporate financial strength; correct? 22 MS. WRAY: Yes, it is. 23 MR. WILLIAMS: Now, Ms. Wray, we have 24 provided you with -- we have provided the Hydro 25 and everyone else in the room but the board -- 922 1 with some exhibits, and I would ask you to turn -- 2 or proposed exhibits -- to the first exhibit, 3 titled "Financial Results for 2020 Wuskwatim IS," 4 and I would ask Mr. Bedford, or Ms. Matthews 5 Lemieux if they have any objections to us 6 presenting this to the panel? 7 Now, Ms. Wray, you will see that there 8 are -- that what this table represents is the 9 projected -- with the financial results assuming a 10 2020 Wuskwatim in-service date under both of the 11 low export price scenario and the high export 12 price scenario for selected years, in terms of 13 debt ratio and cumulative rate increase. Is that 14 correct? 15 16 (EXHIBIT CAC/MSOS-1000: Financial 17 results for 2020 Wuskwatim I/S) 18 (EXHIBIT CAC/MSOS-1001: Financial 19 results for low export price scenario) 20 (EXHIBIT CAC/MSOS-1002: Financial 21 results for high export price 22 scenario) 23 24 MS. WRAY: Yes. 25 MR. WILLIAMS: And on the left-hand 923 1 side under low export price, we see the debt ratio 2 under the -- which is derived from table A.22, and 3 next to that we see the cumulative rate increase 4 again for the low export price scenario; correct? 5 MS. WRAY: Yes. 6 MR. WILLIAMS: And Manitoba Hydro 7 doesn't take any issue with the accuracy of our 8 transcribing these numbers from the table A.22 and 9 A.24 to this exhibit; is that right? 10 MS. WRAY: That's correct. 11 MR. WILLIAMS: Ms. Wray, I wonder if 12 you can now turn to the table financial results 13 for low export price scenario? Do you have that? 14 MS. WRAY: Yes. 15 MR. WILLIAMS: That is the second 16 table. And you see on the left-hand side we have 17 the data, which we just saw from the previous 18 table, from the 2020 in-service date, and on the 19 right-hand side -- which is from A.22 -- and on 20 the right-hand side we have the data from the 2009 21 in-service date which is from table A.21. Is that 22 correct? 23 MS. WRAY: Yes. 24 MR. WILLIAMS: If we go along starting 25 with the debt ratio column, both for the 2020 924 1 in-service date and the 2009 in-service date, 2 starting with the year 2007, the first thing we 3 learn is that advancing Wuskwatim initially leads 4 to a higher debt ratio as borrowing increases to 5 finance the construction of the station lines. Is 6 that right? 7 MS. WRAY: Yes. 8 MR. WILLIAMS: We see that in 2007 9 under the 2020 in-service date, the debt ratio is 10 80 percent while as under 2009 it is 81 percent 11 for the year 2007; correct? 12 MS. WRAY: Yes. I should comment that 13 these numbers are rounded so that the difference 14 might not be as much as 1 percent, it might be 15 less. 16 MR. WILLIAMS: Thank you for that 17 clarification. 18 The peak of the, taking into account 19 rounding, but the peak of the gap between the 2020 20 in-service date and the 2009 in-service date in 21 terms of debt ratio is about 2 percentage points, 22 which is represented by the difference between the 23 79 percent in 2011 versus the 89 percent in 2011; 24 is that right? 25 MS. WRAY: Yes, I think the actual 925 1 number is about 1.6 percent, but it would round to 2 2. 3 MR. WILLIAMS: Mr. Harper is nodding 4 his head in agreement, so I will let him testify 5 on that point. 6 What we are seeing is that after the 7 plant comes into service, the added export 8 revenues generally more than offset the higher 9 costs and the annual net income, assuming rates 10 remain as per the earlier projections; correct? 11 MS. WRAY: Yes. 12 MR. WILLIAMS: So this additional net 13 income can be used either to reduce debt or reduce 14 future required rate increases; correct? 15 MS. WRAY: That's correct. 16 MR. WILLIAMS: And what we see 17 happening, and we can get this from table A.21 and 18 table A.23, we see that under the low debt 19 scenario -- turning now to the cumulative rate 20 increase column -- that the cumulative rate 21 increase for both the 2020 in-service date and the 22 2009 in-service date stays exactly the same up 23 until 2017; is that correct? 24 MS. WRAY: Yes. 25 MR. WILLIAMS: And it stays that way 926 1 until the debt ratio and the advancement scenario 2 equals what it would have been under the 2020 3 in-service scenario, which is about 2018 where we 4 see the debt ratio as 76/76; correct? 5 MS. WRAY: Yes. 6 MR. WILLIAMS: As you confirmed 7 before, afterwards rates are set so as to maintain 8 the 1.15 percent interest coverage, correct, under 9 this scenario? 10 MS. WRAY: Yes, in our analysis. 11 MR. WILLIAMS: Yes. 12 MS. WRAY: I would put one caveat over 13 the cumulative rate increases. It is not as 14 helpful, we think, as taking a present value of 15 the customer rate savings, because the timing of 16 the rate increases is very significant. If you 17 have a rate, if you have comparatively lower rate 18 increases earlier in the game, then you get that 19 benefit for every successive year. Whereas if you 20 were to get those savings out in 2034, you would 21 only have one year before the end of the analysis 22 period. So we prefer to use as a measure the 23 present value of the customer's savings. 24 MR. WILLIAMS: I will certainly give 25 you an opportunity to explore both scenarios. But 927 1 under the low export price scenario, you will 2 confirm for me that at the end of this run, the 3 year 2035, the cumulative rate increase is, under 4 the 2020 in-service date is 40.9 percent, versus a 5 cumulative rate increase under the 2009 in-service 6 date of 39 percent; is that right? 7 MS. WRAY: Yes. 8 MR. WILLIAMS: So just to illustrate 9 that impact, all other things being equal, if I 10 was a consumer paying $100 a month in my Hydro 11 bill today, under the high export, or under the 12 2020 in-service date and the low export price 13 scenario, I would be paying $140.90 a month, is 14 that right, in 2035? 15 MS. WRAY: Well, allowing for the fact 16 that these are just hypothetical rate increases, 17 yes. 18 MR. WILLIAMS: Under the advancement 19 scenario, under the 2009 in-service date, that 20 same consumer would be paying $139 a month; is 21 that right? 22 MS. WRAY: Yes, but I would caution 23 that that doesn't tell the whole story, because 24 there are rate savings prior to 2035 that are more 25 significant than show up on the 2035 line. 928 1 MR. WILLIAMS: Again, we will 2 certainly get into that. But as of 2035, this 3 consumer is paying about $1.90 a month less under 4 the advancement scenario; is that right? 5 MS. WRAY: No, because I don't think 6 necessarily the $100 bill would hold, it would 7 depend on the consumer, but if you take that 8 hypothetical $100 that would be -- 9 MR. WILLIAMS: Those are your 10 financial projections, aren't they, Ms. Wray? 11 MS. WRAY: Yes, but I think you are 12 taking an average consumer bill of $100, and I am 13 just saying that might not be the case. 14 MR. WILLIAMS: Right, and we will get 15 to that perhaps in a second. 16 THE CHAIRMAN: Just before you carry 17 on, Mr. Williams, anyone sitting down who doesn't 18 have these and is interested in following the 19 process may wish to pick up a copy on the table on 20 the side over there. Carry on. 21 MS. WRAY: I am sorry, just one other 22 clarification. I think you used a dollar as an 23 example of a saving there, and it would be $2 I 24 believe, right, because you are comparing a bill 25 of nearly $140 versus $139. 929 1 MR. WILLIAMS: I may have misspoke, 2 but I intended to say $1.90. So you would agree 3 it would be $.90 under the Hydro financial 4 projections? 5 MS. WRAY: Well, I would agree it 6 would be $1.90 in the hypothetical case that you 7 have just provided. 8 MR. WILLIAMS: Could you also confirm 9 that again under 2035, the difference in the debt 10 ratio between the 2020 in-service date and the 11 2009 in-service date is 1 percent; is that right? 12 MS. WRAY: Again, it might be much 13 closer due to rounding, but the debt ratios are 14 certainly converging quite close together. 15 MR. WILLIAMS: Thank you. We can skip 16 the gory details to a certain degree, Ms. Wray, 17 but I wonder if you would turn to the next table, 18 which is financial results for the high export 19 price scenario? And going right to the 2035 20 bottom line, you will agree with me -- and this is 21 the table, financial results for high export price 22 scenario -- that under the 2020 in-service date 23 the debt ratio would be 71 percent; is that 24 correct? 25 MS. WRAY: Yes. 930 1 MR. WILLIAMS: And under the 2009 2 in-service date, the debt ratio would be 3 69 percent, for a difference in the range of about 4 2 percent lower? 5 MS. WRAY: Right. I think if you were 6 to see a few years beyond that, you would see the 7 debt equity ratios converge, that happens if you 8 are holding the interest coverage at 1.15 in each 9 case. 10 MR. WILLIAMS: Taking that same 11 hypothetical consumer who pays pretty close to 12 what I pay a month for my hydro electricity, under 13 the 2020 in-service date, that consumer would be 14 paying $113.10 a month, is that correct, all other 15 things being equal? 16 MS. WRAY: Did you say 113? 17 MR. WILLIAMS: 113. 18 MS. WRAY: Yes. 19 MR. WILLIAMS: And under the 20 advancement scenario, that consumer would be 21 paying $110.10 a month, all other things being 22 equal; correct? 23 MS. WRAY: That's correct, although 24 again I would caution that that is not telling the 25 whole story, that in fact that consumer has been 931 1 seeing a considerably wider spread in their bills 2 with the advancement from about 2015 on. It is 3 just that last year that it is a $3 difference in 4 the bill. For example, in 2020 it is more like an 5 $8 difference in the bill. 6 MR. WILLIAMS: And in 2012, there 7 would be no difference in the bill? 8 MS. WRAY: Yes. 9 MR. WILLIAMS: So I hope Mr. Cruden 10 doesn't take this wrong, but for a senior like 11 Mr. Cruden, his perspective, you know, he does 12 like to think in the big picture, but he may be 13 looking only five or six years down the line 14 instead of down to 2020. You would agree with me 15 on that? 16 MS. WRAY: I am sure that is true. 17 MR. WILLIAMS: I haven't been fired, I 18 am glad to see that. 19 Just in percentage terms, that same 20 consumer under the 2020 scenario would be paying 21 about 2.7 percent more than the consumer under the 22 advancement scenario, assuming high export prices; 23 is that correct? 24 MS. WRAY: Sorry, the 2.7 percent 25 comes from where? 932 1 MR. WILLIAMS: If I divided 113.10, 2 divided by 110.10, that would give you 3 2.7 percent. 4 MS. WRAY: That sounds about right. 5 But, again, it is a larger percentage in the years 6 from 2015 on. 7 MR. WILLIAMS: Just to summarize, in 8 terms of the high export price scenario, the 9 financial benefits in terms of lower debt ratio 10 and rates don't start until about 2015 under this 11 scenario; is that right? 12 MS. WRAY: Yes. 13 MR. WILLIAMS: And by the end of this 14 period, 2035, rates have gone up by roughly 15 3 percent less and the debt ratio is 2 percent 16 lower; is that right? 17 MS. WRAY: I am sorry, could you just 18 repeat the question? 19 MR. WILLIAMS: By the end of this 20 period, being 2035, under the high export 21 scenario, the advancement scenario, the debt ratio 22 is about 2 percent lower and rates are about 23 3 percent lower; is that correct? 24 MS. WRAY: Yes. 25 MR. WILLIAMS: Ms. Wray, I want to 933 1 turn just for a second to the impact of increased 2 export revenues on customer class rate levels. 3 And this is more a question for Mr. Weins 4 probably, but he is not here, and I am sure 5 Mr. Mayer and Ms. Avery Kinew can answer it as 6 well. 7 You will agree with me that export 8 revenue benefits are allocated to customer classes 9 based on the generation and transmission costs 10 associated with each class via the cost allocation 11 methodology; is that right? 12 MS. WRAY: That sounds about right. 13 MR. WILLIAMS: We went through this 14 exercise in painful detail a few months ago. 15 And as a result, while under the high 16 export price class, the cumulative rate savings is 17 3 percent by 2035. You will agree with me as well 18 that not all customer classes will see 3 percent 19 lower rates? 20 MS. WRAY: Generally speaking, there 21 will be some customers who will see more and some 22 who will see less. Of course, by 2035 our cost of 23 service methodology may have changed 24 significantly. 25 MR. WILLIAMS: On behalf of my 934 1 clients, we certainly hope so. But let's assume 2 that it stays the same. You will agree with me 3 that the ones who are likely to see more savings 4 on their bills are those customer classes like 5 industrial, for whom generation and transmission 6 represents a larger than average part of their 7 total bill? You would agree with me on that? 8 MS. WRAY: I think under our current 9 cost of service methodology, that may be true, but 10 it is certainly under constant revision and 11 scrutiny. 12 MR. WILLIAMS: I appreciate that, 13 Ms. Wray. I think I lost that part of the 14 argument in the last hearing. 15 You will agree with me as well that 16 the customer classes, such as residential for whom 17 generation and transmission represent a smaller 18 than average portion of the total bill, will see 19 bill reductions of less than 3 percent by 2035 on 20 average? 21 MS. WRAY: Under the current 22 methodology, that would be true. I am taking just 23 that particular aspect of the cost of service 24 study, there are other aspects of rate design that 25 might be taken into account that could conceivably 935 1 offset that. 2 MR. WILLIAMS: Thank you for that, 3 Ms. Wray. 4 I wonder if you could turn to tab 6 in 5 the reference materials of CAC/MSOS? 6 MS. WRAY: Just before you go there, 7 Mr. Williams, one thing I did want to draw 8 attention to is that 2.7 percent by 2020 is worth 9 $33.3 million in customer savings. So it sounds 10 like a small amount, but it is very substantial in 11 terms of what I think would be fought over at a 12 rate hearing. 13 MR. WILLIAMS: We are certainly 14 expecting to do that in the near future, and we 15 will get to the net present value in a couple of 16 minutes, Ms. Wray. 17 What I would like to do, though, is 18 ask you to turn to tab 6. And you will agree with 19 me that this is an excerpt from the submission to 20 the Clean Environment Commission of Manitoba Hydro 21 and NCN, namely chapter 7, pages 10 through 12; is 22 that right? 23 MS. WRAY: Yes. 24 MR. WILLIAMS: I want to draw your 25 attention, Ms. Wray, we are going to go through 936 1 each in turn, but the three figures that appear in 2 this excerpt, being figure 7.4, the impact of 3 Wuskwatim advancement on Manitoba Hydro's debt 4 ratio; figure 7.5, being impacts of Wuskwatim 5 advancement on customer rates; and figure 7.6, 6 being the impact of Wuskwatim advancement on 7 customer bills. I am sure you see that, Ms. Wray; 8 is that right? 9 MS. WRAY: Yes. 10 MR. WILLIAMS: Now, as I understand 11 it, the detailed analysis of Hydro that appears in 12 chapter 7 is based on the results and 13 interpretation of the projected financial 14 statements filed in attachment 7, tables A.21 to 15 24 of the April 2003 submission, as well as the 16 August 2003 supplemental filing CCC NFAAT S-7a, 17 tables A.21 to A.24; is that right? 18 MS. WRAY: Yes. 19 MR. WILLIAMS: Now, if you could turn 20 to figure 7.4, again the impacts of Wuskwatim 21 advancement on Manitoba Hydro's debt ratio, it 22 essentially sets out the change in the debt ratio 23 that would occur in each year relative to the 2020 24 case, assuming that rates in the advancement case 25 are kept the same as for the 2020 case; is that 937 1 right? 2 MS. WRAY: That's correct. 3 MR. WILLIAMS: In other words, all of 4 the benefits from advancement go towards net 5 income and debt reduction, and the rates stay the 6 same as they would under the 2020 scenario; is 7 that correct? 8 MS. WRAY: That is correct. We did 9 the analysis two ways. 10 MR. WILLIAMS: I appreciate that. 11 And if we look at this table, we see 12 in the years between 2005, and peaking around 2009 13 or 2011, there is an increase in the debt ratio 14 prior to the in-service date as a result of the 15 increased borrowing needed to finance the 16 advancement of Wuskwatim; is that correct? 17 MS. WRAY: That's correct. 18 MR. WILLIAMS: Naturally after 19 in-service, being 2009/2010 in this scenario, the 20 debt ratio improves due to the profits from 21 exports; is that correct? 22 MS. WRAY: Yes. 23 MR. WILLIAMS: And under the high 24 export scenario, high price export scenario which 25 is the bottom line on this figure, we see the 938 1 cross-over point at which the debt ratio is better 2 under the advancement case than the 2020 scenario 3 is about 2015; is that right? That is a 4 cross-over point where the -- 5 MS. WRAY: Yes. 6 MR. WILLIAMS: Okay. And we see under 7 the low export price scenario it is at 2018 where 8 the cross-over point takes place; is that right? 9 MS. WRAY: That's correct. 10 MR. WILLIAMS: Again, assuming that 11 prices are held the same, which is the assumption 12 of this table, we see that by 2035 the debt ratio 13 would be roughly 8 percentage points lower in the 14 export price in the low export price scenario; is 15 that right? 16 MS. WRAY: Yes. 17 MR. WILLIAMS: And about 18 percentage 18 points lower in the high export price scenario; 19 correct? 20 MS. WRAY: Correct. 21 MR. WILLIAMS: If you turn to figure 22 75, which is titled "Impacts of Wuskwatim 23 Advancement on Customer Rates," as I understand 24 it, this figure is based upon, and you referenced 25 this I believe in your comments on Monday, is 939 1 based on a bit of a different scenario than in 2 figure 7.4; is that right? 3 MS. WRAY: Yes, this assumes that as 4 soon as the debt ratio has returned to the point 5 that it would have been at without a Wuskwatim 6 advancement, any benefits would be passed on to 7 consumers in the form of lower rate increases than 8 would otherwise be the case. 9 MR. WILLIAMS: Okay. So, just 10 essentially rather than keeping rates the same, 11 which is what figure 7.4 does, the analysis 12 discussed and this assumes that the improved 13 financial outlook leads to rate reductions; 14 correct? 15 MS. WRAY: Yes. 16 MR. WILLIAMS: And it is based on the 17 differences in cumulative rate increases between 18 the Wuskwatim 2009 in-service date and the 19 Wuskwatim 2020 case; is that right? 20 MS. WRAY: Yes. 21 MR. WILLIAMS: Just as one example, in 22 2020, you will agree with me that under the -- 23 excuse me. Just as one example, you will agree 24 with me that in 2015, under the high export 25 scenario, the cumulative rate increase is 940 1 3.7 percent, whereas under the low export scenario 2 the cumulative rate increase is 8 percent; is that 3 right? 4 MS. WRAY: I will take your numbers, 5 subject to check. 6 MR. WILLIAMS: So the difference 7 between those two figures would be 4.3 percent, 8 which is reflected in kind of the blip on the high 9 export scenario at 2015; is that right? 10 MS. WRAY: Yes. What the blip in that 11 chart shows is that there are some fairly 12 significant rate savings to be had, depending on 13 what export prices are, between that period 2015 14 and 2018. The reason that they appear in this 15 fashion is that we have assumed that what the 16 corporation would be doing is to try and keep its 17 interest coverage to 1.15, and anything beyond 18 that would flow to consumers in the form of rate 19 savings. 20 In actual case, I imagine that the 21 rate savings would be smoothed over the period in 22 a manner that would be approved by the Public 23 Utilities Board. 24 MR. WILLIAMS: And just going out, we 25 discussed this before, at the tail end of figure 941 1 7.5, again we see the difference between the 2 cumulative rate increases being about 3 percent at 3 that point in time; is that right? 4 MS. WRAY: Yes. 5 MR. WILLIAMS: And the simple point 6 that I wish to make from this, these two figures, 7 7.4 and 7.5, is that based upon the Hydro rate 8 projections, you can't have both occurring at the 9 same time; is that right? 10 MS. WRAY: That is correct. I think 11 what it allows for is the debt ratio, in a 12 relatively short period of time, to recover the 13 small increase that occurred at the in-service, or 14 around about the time of the construction of 15 Wuskwatim. That can be recovered very quickly, 16 even under low price scenario. And thereafter, 17 there is a choice as to whether the utility 18 improves its financial performance, or returns 19 rate savings to the customers, or a combination of 20 the two. And certainly I think the corporation 21 would try as much as possible to return those 22 savings to customers. 23 MR. WILLIAMS: The reason I ask this, 24 Ms. Wray, is because when I first saw these 25 tables, I thought to myself, wow, this is 942 1 tremendous, under the high export scenario we can 2 get an 18 percent reduction in the debt ratio by 3 2035, and a 3 percent positive difference in rate 4 increases. And your point is that we can't get 5 both at the same time? 6 MS. WRAY: Right. And I tried to make 7 that clear in my opening presentation. 8 MR. WILLIAMS: Yes. And perhaps just 9 to turn you back to the first page of this 10 section, two paragraphs above figure 7.4, we see a 11 line saying, 12 "The second step in the financial 13 analysis is to translate these 14 benefits into potential long term rate 15 savings." 16 And this is where I became confused in reading the 17 text. And you will agree with me that figure 7.4, 18 the declining debt ratio is an attempt to 19 translate these benefits into potential long term 20 rate savings. It doesn't reflect that scenario; 21 is that right? 22 MS. WRAY: I don't know if I 23 understand your question. 24 MR. WILLIAMS: I guess my question, 25 "inelegantly" phrased as it was, is that when I 943 1 read the first paragraph on page 10 of 13, my 2 expectation would be that the figures which follow 3 about translating the benefits from Wuskwatim into 4 potential long term rate savings, and figure 7.4, 5 the declining debt ratio assumes that there is no 6 change in rates between the 2020 and the 2015, or 7 the 2009 scenario; correct? 8 MS. WRAY: I don't know whether you 9 are asking me a question as to whether we are 10 clear enough on this page as to whether this is an 11 either/or. I do believe earlier in the chapter 7 12 of the submission we did lay out that it was an 13 either/or. 14 MR. WILLIAMS: I appreciate that, and 15 we will move on to figure 7.6. 16 Now, as I understand it, this figure 17 is calculated in a manner that is consistent with 18 figure 7.5; is that right? 19 MS. WRAY: Yes. The difference being 20 that this time we are looking at the present value 21 of benefits, we are translating them into 2002 22 dollars -- the benefits to customers that is -- 23 whereas the preceding draft just looked at those 24 percentage cumulative rate increases that I 25 mentioned were not entirely indicative. 944 1 MR. WILLIAMS: Right. Just so I am 2 clear on the process that you -- perhaps you could 3 flip back to tab 5, and the first two attachments 4 there, attachment 7, table A.21, and attachment 5 A.22, and perhaps we can just use one year as an 6 example. We will use the year 2019. What you've 7 done is taken the impact on customer bills, the 8 revenue, from the low price scenario, you have 9 added the general customer revenue at approved 10 rates, plus the additional customer revenue, and 11 the non-existent revenue from Winnipeg Hydro, and 12 you have got the figure of 1,234. Would that be 13 right? 14 MS. WRAY: Can you direct me to that 15 number? 16 MR. WILLIAMS: I am just trying to 17 get, if you add those figures together, being 18 general customer revenues at approved rates and 19 additional, you will get a figure of 1,234? 20 MS. WRAY: Which year? 21 MR. WILLIAMS: 2019 -- sorry, 22 Ms. Wray. 23 MS. WRAY: There is no Winnipeg Hydro 24 revenue, there is only one year that that 25 occurred. That was 2003. 945 1 MR. WILLIAMS: Right. 2 MS. WRAY: Yes. If you take 1.003 to 3 23, and were those the only numbers you were 4 talking about? 5 MR. WILLIAMS: Sorry -- let's simplify 6 this. What you've done is you have taken the 7 general customer revenues from table A.21 under 8 the low price scenario for a particular year, and 9 you have subtracted from that the general customer 10 revenues from the 2020 scenario, and then you have 11 discounted those back to 2002 dollars; is that 12 right? 13 MS. WRAY: Yes, that's correct. And I 14 don't have the actual number in front of me, but 15 if you take -- well, the first line, 1003 is the 16 same in both cases, that is just general consumers 17 revenue at approved rates. And the second line is 18 what we call additional rate increases. And in 19 the case of Wuskwatim advancement, by 2019, it is 20 202 million. Without the Wuskwatim advancement, 21 it is 223 million. So there is a $21 million 22 difference in that year alone. And we would 23 discount that back to 2002 dollars, making it a 24 much smaller number. 25 What we do is we look at every year 946 1 and do that same calculation, and thereby produce 2 the graph that you see on figure 7.6. 3 MR. WILLIAMS: And just jumping to the 4 end of figure 7.6, the cumulative net present 5 value by 2035 under the low export price scenario 6 is 87 million, while under the high export price 7 scenario it is 216 million; is that right? 8 MS. WRAY: Yes, in today's dollars. 9 It would be much larger dollars by the time 10 Wuskwatim comes in. 11 MR. WILLIAMS: I am just trying to get 12 a perspective of where this fits within the big 13 picture, Ms. Wray. And so what I could do to get 14 that perspective is to compare the difference of 15 the advancement scenario against the total net 16 present value of the 2020 base case. You could do 17 that; correct? 18 MS. WRAY: What are you taking out of 19 2020 to be your denominator? 20 MR. WILLIAMS: If I took the customer 21 revenues in each year between 20 -- between the 22 start of the projection up to 2035, I could do 23 that calculation; correct? 24 MS. WRAY: If you want to find out the 25 percentage impacts in a particular year, for 947 1 example, you use 2019, and there was a $21 million 2 savings to customers just in that one year, so you 3 could take 21 over the 12.26 as a denominator, and 4 you would get in that particular year 1.7 percent. 5 Is that what you are getting at? 6 MR. WILLIAMS: Yes. And let me try it 7 a different way. I wonder if you could accept, 8 subject to check, that under the low export price 9 base case scenario, the cumulative net present 10 value for customers' bills from 2002/03 to 2034/35 11 is 13,000,421,000. Would you accept that, subject 12 to check? 13 MS. WRAY: You are starting in 2003, 14 and adding from 2003 on, is that what you are 15 doing? 16 MR. WILLIAMS: Yes, and discounting 17 back. 18 MS. WRAY: Yes, I don't know why you 19 would do that, but I can take your number subject 20 to check. What was it again? 21 MR. WILLIAMS: 13,000,421,000 -- 22 13,421,000,000, I apologize. So if I want to 23 calculate the impact of the advancement as a 24 percentage of total bills under the low case 25 scenario, I would take the 87 million, which is 948 1 the net present value of the advancement, over the 2 13,421,000,000, which is the net present value of 3 the total customer bills under the base case; is 4 that correct? 5 MS. WRAY: I don't know why you would 6 do it. I mean, you are starting in 2003, whereas 7 we are looking at an in-service date of 2010 8 probably. I mean, another way of looking at it 9 would be to take the expected present value of 10 savings, which we've estimated at $143 million in 11 today's dollars, and take that over the 12 800 million or so dollars that consumers pay today 13 in rates, and what you are getting would be 14 equivalent to a one-time rate savings of 15 18 percent. I think that would be a more 16 meaningful number. 17 MR. WILLIAMS: I think I will let you 18 and Mr. Harper debate this one, because I am not 19 adding a lot of meaning to this conversation. 20 So, I wonder if I can direct the 21 panel, and maybe Mr. Wojcznski, to tab 7 of the 22 CAC/MSOS book of references. Do you have that, 23 sir? 24 MR. WOJCZYNSKI: We have it. 25 MR. WILLIAMS: What I would like to do 949 1 is take you through a brief overview of my 2 understanding of Hydro's process in judging the 3 economic of a project versus the risk. And I am 4 using your response to CAC/MSOS 3a as kind of a 5 starting point. And my understanding is that in 6 order to evaluate the economics of a project, 7 Hydro uses business case principles involving 8 techniques such as net present value, NPV, or 9 internal rate of return, IRR. Is that right, sir? 10 MR. ADAMS: Yes. 11 MR. WILLIAMS: And just to -- and 12 Mr. Abra went through this so I will try not to 13 dwell on it, but just for a shorthand definition 14 of net present value, it calculates a present 15 value, i.e. the value as of a specified point in 16 time, typically the point in time at which the 17 investment is made, of a series of cash flows 18 lasting for a certain period of time, both 19 revenues and costs, using a pre-defined rate of 20 interest. Is that right? 21 MR. ADAMS: Yes. What it looks at is 22 incremental revenues, incremental costs, using a 23 pre-determined rate of interest. 24 MR. WILLIAMS: And IRR calculates a 25 return on an investment involving a series of 950 1 revenues and costs over a period of time; correct? 2 MR. ADAMS: The same series of 3 revenues, the same series of costs, and it 4 calculates when the NPV equals zero. 5 MR. WILLIAMS: In the IRR calculation, 6 you solve for the rate of return; is that right? 7 MR. ADAMS: Yes. 8 MR. WILLIAMS: Thank you. And Hydro, 9 in assessing the economics of a project, uses this 10 cost benefits analysis to determine if it is 11 viable. And generally, if the benefits of the 12 project are greater than the costs over the 13 analysis period, considering the time value of 14 money, the project is economically viable and has 15 a positive cost benefit; is that right? 16 MR. ADAMS: Yes. 17 MR. WILLIAMS: And a key concept in 18 this analysis is the hurdle rate, which is the 19 minimum expected rate of return that would be 20 acceptable to justify an investment; is that 21 right? 22 MR. ADAMS: Yes. 23 MR. WILLIAMS: In essence, the hurdle 24 rate reflects Hydro's judgment as to the degree 25 and magnitude of the risks associated with the 951 1 project. Would that be fair? 2 MR. ADAMS: In Hydro's case generally, 3 yes, it may also include an expectation of return 4 of profitability. 5 MR. WILLIAMS: So as I understand it, 6 NPV and IRR are important analytical tools, on the 7 part of Hydro, in assessing the merits of a 8 business case, looking at the potential benefits, 9 costs, and comparing them to the potential risk; 10 is that fair? 11 MR. ADAMS: Yes. 12 MR. WILLIAMS: Now, as you can 13 probably tell by the problem that I was having in 14 posing those questions, Mr. Adams, what I am 15 looking for is a simplified tool to get a sense of 16 the uses of net present value and IRR that can be 17 employed in terms of assessing a business case. 18 So I am going to direct you to the scenario which 19 we call the NPV and IRR illustrative example. 20 MR. ADAMS: Where is that? 21 MR. WILLIAMS: The panel does not have 22 that yet. That is a potential exhibit, 23 Mr. Grewar. Mr. Bedford, I take it you have no 24 objections to -- 25 MR. GREWAR: Identify it again, 952 1 please. 2 MR. WILLIAMS: It is titled NPV and 3 IRR, illustrative example. 4 5 (EXHIBIT CAC/MSOS-1003: NPV AND IRR 6 ILLUSTRATIVE EXAMPLE) 7 8 MR. WILLIAMS: Mr. Chairman, through 9 you to Mr. Grewar, my colleague Mr. Bedford has 10 asked that I remind him, or I seek to have these 11 marked as exhibits. So at an appropriate occasion 12 Mr. Grewar, through the charity of you, I would 13 ask you to do so. 14 MR. WOJCZYNSKI: Mr. Williams, do you 15 have an extra copy of the cash flow tables with 16 the cases in it? Do you have one extra copy for 17 our panel here? 18 MR. WILLIAMS: Mr. Chairman, I had 19 provided these to Hydro, the scenarios last week, 20 and then we put them together and provided them to 21 them this morning. Just kind of listening in, I 22 hear that Mr. Wojcznski may not have seen these. 23 I wonder, I ask perhaps, they might want a FEW 24 minutes to quickly review the scenarios. 25 MR. WOJCZYNSKI: I think Ms. Wray -- 953 1 there was some confusion, and I did not have it 2 but Ms. Wray did have it, so I think she would be 3 prepared to answer questions, but we will all chip 4 in as required. 5 MR. WILLIAMS: I have no doubt of 6 that, sir. 7 Ms. Wray, just as a starting point, we 8 are trying to use these simplified examples to 9 understand how NPV and IRR are employed and the 10 things they can tell us about a project, in 11 essence how they are used as an analytical tool; 12 do you understand? 13 MS. WRAY: Yes. 14 MR. WILLIAMS: Whether or not 15 Mr. Wojcznski saw it, these scenarios were 16 provided in a different form to Hydro last week, 17 and you can confirm that the calculations in terms 18 of NPV and IRR were confirmed by Hydro; is that 19 correct? 20 MS. WRAY: We had a table that didn't 21 have any examples by way of it being a renovation 22 project or whatever, but we did have some 23 numerical examples of ten different scenarios of 24 cash flows and we did verify their accuracy. 25 MR. WILLIAMS: I am going to take you 954 1 through the example, and we will start with the 2 background for the benefit of the panel and also 3 those here who don't have a copy of it. And we 4 are going to start with the situation with the 5 young homeowner who has an unfinished basement 6 that with expensive renovations he could turn into 7 two apartments and rent for ten years, and after 8 the ten years he expects that he will need the 9 space for personal use. Do you see that, 10 Ms. Wray? 11 MS. WRAY: Yes. 12 MR. WILLIAMS: The cost of renovations 13 are quoted to him or her at $100,000, and he has 14 spoken to his bank, and they are willing to let 15 him take out a second mortgage on his house at 16 10 percent per annum, which would be amortized 17 over 10 years. Interest is to be calculated at 18 the completion of the project, move in of the 19 tenants. Do you see that? 20 MS. WRAY: Yes. 21 MR. WILLIAMS: And the survey of local 22 rents suggests that he could earn $20,000 per 23 year, i.e. $10,000 for each apartment, but it did 24 indicate a range in the area of between 15,000 to 25 22,000, do you see that? 955 1 MS. WRAY: Yes. 2 MR. WILLIAMS: And for simplicity 3 purposes, please assume that all costs were 4 incurred at year end and all revenues were 5 received at year end, and also for simplicity 6 purposes assume that there are no additional costs 7 incurred by the owner after the initial 8 renovations unless explicitly stated. And finally 9 all costs and revenues are expressed in real terms 10 as at the time of the completion of the 11 renovations, and a ten percent loan rate is also a 12 real cost of debt. How is that for a handful, Ms. 13 Wray? 14 MS. WRAY: Yes, I would just comment 15 though that the 10 percent loan rate being the 16 real cost of debt is about double of what we are 17 talking about here. We are talking about 18 something a little bit over 5 percent. So I had a 19 little bit of concern that in the example that you 20 have chosen the 10 percent would tend to suggest 21 the real hurdle rate that we are using, whereas in 22 fact the 10 percent here is supposed to be more 23 representative of the 5.35 percent, or whatever 24 that we are using as a cost of debt. I also have 25 concerns when you are using an example like this 956 1 as an analogy, so I am making that point now, but 2 I think as far as an example as how NPV relates to 3 IRR, that is fair enough. 4 MR. WILLIAMS: Thank you, Ms. Wray. 5 And I had no doubt that you would have some 6 comments about this. Perhaps we can turn to 7 scenario 1, and in case A, we can see at the top 8 of that column the initial investment of $100,000, 9 and then the revenue at the end of each year being 10 $6,275. Do you see that, Ms. Wray? 11 MS. WRAY: Yes. 12 MR. WILLIAMS: And the net present 13 value of that calculation or of that scenario is 14 zero, whereas the IRR is 10 percent which is 15 equivalent to the loan. Is that correct? 16 MS. WRAY: Yes. 17 MR. WILLIAMS: Again we look at case 18 B, and we see the same kind of scenario but with a 19 revenue of $20,000 instead of $16,275; is that 20 correct? 21 MS. WRAY: Yes. 22 MR. WILLIAMS: And the IRR in that 23 scenario is 15 percent, well above the 10 percent 24 loan rate, and the net present value is 25 $20,810.31, is that right? 957 1 MS. WRAY: Yes. It is positive 2 because the internal rate of return is higher than 3 the cost of borrowing. 4 MR. WILLIAMS: Right. And in case C, 5 where the internal rate of return is less than the 6 cost of borrowing, being 8 percent, there is a 7 negative net present value, correct? 8 MS. WRAY: Yes. And in that case it 9 is because the internal rate of return is less 10 than the borrowing rate that you have a negative 11 result. 12 MR. WILLIAMS: So, essentially if the 13 IRR is below the interest rate, then the home 14 owner loses money. If it is above the interest 15 rate, then the homeowner makes money, correct? 16 MS. WRAY: Yes, in this example. 17 MR. WILLIAMS: And I guess what this 18 example also illustrates is the risk to this 19 property owner in terms of the revenue, the 20 revenue that he might earn from this property, is 21 that right? 22 MS. WRAY: Yes. I do think that the 23 property owner would probably do projected 24 financial statements rather than IRRs, but within 25 the parameters that you have given me -- 958 1 MR. WILLIAMS: This property owner is 2 from Toronto, so they do things a little bit 3 differently. They do both because of the rigor of 4 their analysis. So what these scenarios show, the 5 risk to -- I said this before, but just to frame 6 it more tightly, the risk to the property owner of 7 different streams of revenue, correct? 8 MS. WRAY: Yes. 9 MR. WILLIAMS: And would you agree 10 with me that in this case, this is, you know, this 11 is a young property owner, and so his kind of 12 knowledge of the market might leave him a little 13 less confident in his projected revenues than 14 someone who is more experienced in the market, 15 would that be fair as well? 16 MS. WRAY: It could be. 17 MR. WILLIAMS: And so the degree of -- 18 the more experienced one is in a market, you might 19 be willing to take more risks in terms of revenue 20 streams; would you agree with that? 21 MS. WRAY: Yes. 22 MR. WILLIAMS: Turning to scenario 2, 23 Ms. Wray. And what you can see here is the one 24 case A is merely a replication of what appears on 25 the page before, being initial investment of 959 1 $100,000 and revenue at the end of each year of 2 $20,000, yielding an IRR of $15,000, and a net 3 present value of $20,810.31, is that right? 4 MS. WRAY: Yes. 5 MR. WILLIAMS: If you turn to case B 6 you see that the revenue stream is a little bit 7 different, being in the first five years only 8 $15,000, and in the last five years being $30,000, 9 is that correct? 10 MS. WRAY: Yes. 11 MR. WILLIAMS: So in both cases the 12 internal rate of return is 15 percent, but the net 13 present value under case B is $24,977. It is 14 higher because of timing issues in terms of the 15 stream of revenue, is that right? 16 MS. WRAY: Yes. And the reason it is 17 happening is because at a lower discount rate, in 18 this case the 10 versus the 15, the later payments 19 aren't penalized as much, discounted as much. So 20 the analogy if you want to draw it to Wuskwatim, 21 is Wuskwatim is probably a little bit like case B, 22 because we are expecting real escalation and 23 export prices, we would expect that to grow as 24 time goes on. And if we had used our cost of debt 25 as our discount rate, as this homeowner seems to 960 1 be doing, we would be able to show you a much 2 larger profit for Wuskwatim. But in fact we have 3 been quite conservative and we have used something 4 quite a bit higher than the cost of debt. 5 MR. WILLIAMS: And that may reflect 6 the risk that you face in terms of Wuskwatim? 7 MS. WRAY: Yes. 8 MR. WILLIAMS: If you turn to scenario 9 3. We have on the left-hand side, case A, our 10 same old standard scenario. But you note that 11 case B, the clever entrepreneur from Toronto has 12 thrown in a twist. And you assume a second option 13 exists to spend $200,000 on renovation and the 14 increased rents to $37,000 per annum. And if you 15 do that, Ms. Wray, you will agree with me that the 16 IRR is less, being 15 percent under the case A 17 scenario and 13 percent under the case B 18 scenario. But the net present value is actually 19 greater under the case B scenario. 20 MS. WRAY: Yes. I think this is an 21 instance where the NPV might give the not so 22 clever homeowner the wrong impression, because he 23 is using the same 10 percent discount rate, 24 whether he spends 100,000 or 200,000. So this is 25 an instance where I think the IRR may give him a 961 1 better indication. 2 MR. WILLIAMS: Does it also reflect 3 the fact that IRRs don't take into account the 4 magnitude of the investment to the same degree? 5 MS. WRAY: I think actually the 6 opposite may be the case. It is the NPV method 7 doesn't take into account the magnitude of the 8 investment. 9 MR. WILLIAMS: Okay. Thank you. I 10 wonder if you can turn to scenario 4. And in this 11 case we have got the same old case A scenario, 20, 12 20, 20, yielding 15 percent and a net present 13 value of almost $21,000. And then in case B we 14 see that the homeowner has heard that in some 15 cases it can take up to six months to find a new 16 tenant. So case C sets out the sensitivity of the 17 return, assuming that tenants turn over every two 18 years. Do you see that, Ms. Wray? 19 MS. WRAY: Yes. 20 MR. WILLIAMS: So in essence every 21 second year this landlord loses $5,000 in terms of 22 revenue from each tenant, correct? 23 MS. WRAY: Yes. 24 MR. WILLIAMS: So this is another 25 market risk that the prudent landlord might want 962 1 to take into account, correct? 2 MS. WRAY: Yes, although it did strike 3 me that this one was one where the risks of the 4 rental market were a great deal greater than the 5 risks of Wuskwatim. Because having a situation 6 where you have six months to find a new tenant, 7 and that happens every second year, it would be 8 analogous to having droughts occurring every 9 second year. 10 MR. WILLIAMS: I guess one of the 11 differences between this situation and Wuskwatim 12 is in this case the landlord can mitigate many of 13 his risks. He can be, for example, more 14 aggressive, or he can be a better landlord so he 15 has less turn over, and he can also be more 16 pro-active in his search for tenants. So there 17 are ways that he can mitigate his risks, correct? 18 MS. WRAY: Yes, although he is still 19 subject to the market and if there is a high 20 vacancy factor he can't do too much about that 21 other than drop his rents. 22 MR. WILLIAMS: And certainly the 23 biggest risk factor that Hydro faces in terms of 24 Wuskwatim relates to the U.S. export market where 25 there are a number of factors which are beyond its 963 1 control, is that not right? 2 MS. WRAY: I don't think any more 3 risky than the rental market analogy. If you have 4 a high -- the analogy to the high vacancy factor 5 would be a lot of power being sold on the market 6 and you would have to drop your price to take that 7 into account. But we have done that before, and 8 still made profitable export sales. 9 MR. WILLIAMS: I wonder if we can turn 10 to scenario 5, Ms. Wray. 11 MS. WRAY: Plus of course an 12 electricity contract would be generally a lot 13 longer than a lease. 14 MR. WOJCZYNSKI: I would also add that 15 the exposure on the drought, as Ms. Wray 16 indicated, if you look at the 50 percent of the 17 revenues, that is every second year, that is much 18 more extreme than anything that we are looking at 19 and would need to look at in our hydro projects. 20 MR. WILLIAMS: Thank you, 21 Mr. Wojcznski, I am glad you caught up with us in 22 terms of the scenario. If you go to scenario 5, 23 case A, there is a typo at the bottom of this, it 24 sets out the homeowner's initial assessment. What 25 we have in this scenario is a hotly contested 964 1 municipal election where one mayoralty candidate 2 is advocating that all basement apartments must 3 have a second entrance. So, if the candidate is 4 elected and the bylaw passed, the homeowner would 5 have to spend $30,000 in year two to excavate and 6 install a second entrance. So what you see in 7 case B rather than case C, case B is the financial 8 consequences if a candidate is elected in this 9 term and the bylaw is introduced quickly in the 10 sense that there is an impact in the revenue in 11 year one, is that correct? 12 MS. WRAY: Yes. 13 MR. WILLIAMS: And that, in that 14 scenario where the bylaw is brought into place 15 quickly, results in an IRR of 9 percent and a 16 negative net present value of almost $4,000, 17 correct? 18 MS. WRAY: Yes. 19 MR. WILLIAMS: And case C provides the 20 financial consequences if the candidate is elected 21 but the bylaw is not passed for a couple of years. 22 And you can see that in terms of year number 4 23 where the negative impact of minus 10,000 takes 24 place, is that right? 25 MS. WRAY: Yes. I couldn't 965 1 immediately see an analogy for Wuskwatim in this 2 one. 3 MR. WOJCZYNSKI: I might add though if 4 we get a different president and it happens to be 5 that we get greenhouse gas regulations like Kyoto, 6 that what we would have in the analogy might be 7 the analysis of case A, but then in the third 8 year, second year jumps to 40 instead of 20, or 30 9 instead of 20, so there would be an upside that we 10 haven't accounted for if that happened. 11 MR. WILLIAMS: Let's keep on and 12 finish up case C and we will get to the lessons we 13 might draw from this. Under case C, because of 14 the timing of the slightly delayed implementation 15 of the bylaw, the IRR is 11 percent and the net 16 present value is $2,182.67, is that correct, 17 Ms. Wray? 18 MS. WRAY: Yes. 19 MR. WILLIAMS: So in this scenario 20 what we have is uncertainty in terms of who will 21 be elected, what they will do if they are elected, 22 and if they do decide to do something, when they 23 will do it, is that correct? 24 MS. WRAY: Yes. As Mr. Wojcznski 25 pointed out, it could go either way. You could 966 1 have a positive benefit being delayed or 2 accelerated. 3 MR. WILLIAMS: And would you agree 4 with me that predicting who will be elected and 5 what they will do when they are elected is a 6 pretty difficult task? 7 MS. WRAY: I suppose if you are Sheila 8 Copps, yes. 9 MR. WOJCZYNSKI: I would suggest to 10 you, Mr. Williams, that in our analysis what we 11 have done is taken a wide range of forecasts and 12 tried to deal with that uncertainty and taken a 13 fairly conservative approach in some regards. It 14 is always difficult to predict what individual 15 politicians and individual governments will do, 16 but there is general trends that are occurring in 17 the market regardless of the political stripe of 18 the U.S. or Canadian Government for that matter. 19 And we recognize there is an inherent uncertainty, 20 but there is some general trends that hold 21 regardless of the individuals that are there. 22 MR. WILLIAMS: Would you agree with me 23 that for this landlord he or she might have more 24 confidence in predicting market risks than they 25 would have in predicting political risks, would 967 1 you agree with me? 2 MS. WRAY: The magnitude that you have 3 shown here by way of illustration is such that you 4 would have to have a very large swing say in the 5 cost of Wuskwatim. I mean, it is hard to imagine 6 a political risk that would have that degree of 7 magnitude on the project. 8 MR. WILLIAMS: I am trying to get to 9 the point of principle, Ms. Wray, which is that it 10 is inherently difficult, if not impossible, to 11 predict with certainty the actions of politicians 12 or regulators; is that fair? 13 MS. WRAY: I guess I take comfort from 14 the fact that whoever the politicians are, they 15 are the elected representatives of the people who 16 would be affected by this project, and therefore, 17 would act in the most part in the best interests 18 of the people who would benefit. 19 And just to come back to my point 20 about magnitude, we are talking here about a 21 13 million, sorry, a $30,000 swing in a $100,000 22 project. It is very hard to imagine anything of 23 that magnitude affecting Wuskwatim. It would 24 require a swing of $250 million in the project 25 costs, for example. And it is very difficult to 968 1 imagine what political or other circumstance would 2 bring that about. 3 MR. WILLIAMS: Let's turn to scenario 4 6, Ms. Wray. We see our good old base case, and 5 case A in the first column, and again there is a 6 typo at the bottom under comment. But it should 7 read case B, presents results associated with 8 scenario 6 regarding the basement entrance bylaw. 9 And case C -- and so again we have the results of 10 an IRR of 9 percent and a negative net present 11 value of almost 4,000, is that correct, Ms. Wray? 12 MS. WRAY: Yes. 13 MR. WILLIAMS: And case C we have -- 14 what we have is at the same time as the basement 15 entrance or around the same time as the basement 16 entrance bylaw comes in, we have local developers 17 indicated plans yet to be confirmed and approved 18 to build new commercial space nearby in a couple 19 of years, and that is reflected in the scenario 20 in -- excuse me, and if this were to occur the 21 homeowner would be able to increase rent from 22 20,000 to 25,000, do you see that, Ms. Wray? 23 MS. WRAY: Yes. 24 MR. WILLIAMS: So what we have here in 25 this scenario is revenue in the first year of 969 1 minus 10,000 due to the bylaw, 20,000 the second 2 year and then the impact of the -- or the 3 potential impact of the developer, and his plans 4 in years three through ten, correct? 5 MS. WRAY: Yes. 6 MR. WILLIAMS: And that results in an 7 IRR of 13 percent and a net present value of 8 16,000, correct? 9 MS. WRAY: Yes. 10 MR. WILLIAMS: So what we have in this 11 scenario is the coupling of a political risk with 12 a market opportunity. And the difficulty is in 13 assessing kind of two non-correlated events, would 14 that be fair, Ms. Wray? 15 MS. WRAY: Yes. A lot depends on the 16 timing of the event. If the adverse event occurs 17 towards the end of the ten years, it will have a 18 lot less impact certainly with these numbers, than 19 if it happens at the beginning, as it does here. 20 MR. WILLIAMS: And again that goes to 21 the issue of uncertainty in terms of if something 22 will happen and when it will happen, is that 23 correct? 24 MS. WRAY: Yes, and also the size of 25 the impact. 970 1 MR. WILLIAMS: Thank you for that 2 answer. Scenario 7, and we are almost done. 3 Again we have good old case A, with an IRR of 4 15 percent and a net present value of 20 percent. 5 Is that correct, Ms. Wray? 6 MS. WRAY: Yes. 7 MR. WILLIAMS: And in case B what we 8 presented is the homeowner learns that smokers 9 have a more difficult time finding accommodation 10 and will pay more for accommodation. Do you see 11 that, Ms. Wray? 12 MS. WRAY: Yes. 13 MR. WILLIAMS: So in case A it sets 14 out what would happen if he rents to a non-smoker 15 and case B if he rents to a smoker; is that 16 correct? 17 MS. WRAY: Yes. 18 MR. WILLIAMS: And you can see based 19 upon the higher revenues, 22,000 per annum, that 20 the IRR is 18 percent and the net present value is 21 almost 32,000, correct? 22 MS. WRAY: Yes. 23 MR. WILLIAMS: And I guess what this 24 demonstrates is the policy issues and what the 25 homeowner has to decide is how much value he or 971 1 she will attach to having a smoke free house in 2 terms of safety and smell, et cetera, is that 3 correct? 4 MS. WRAY: Yes. The analogy that 5 occurred to me here was that perhaps there will be 6 a day when importing states will place a higher 7 value on clean hydro power and be willing to pay a 8 premium for it. 9 MR. WILLIAMS: I always regret 10 providing you these scenarios in the morning and 11 giving you time to think about them over lunch. 12 But we are trying to educate the panel and myself 13 as well, no doubt. Scenario 8, I wonder if you 14 could turn there, Ms. Wray. You will agree with 15 me that we have the same old standard case A, 16 Ms. Wray? 17 MS. WRAY: Yes. 18 MR. WILLIAMS: And in case B, what we 19 have is the homeowner going into partnership with 20 his brother and splitting costs and revenues 21 equally. And you will see that in the sense that 22 the initial investment for both is $50,000, and 23 the revenue at the end of each year is $10,000 for 24 each of them. Do you see that, Ms. Wray? 25 MS. WRAY: Yes. 972 1 MR. WILLIAMS: And so when you compare 2 and you will see at the end the IRR for each, 3 party one and party two under case B is 4 15 percent, and the net present value is 5 $10,405.16, is that right? 6 MS. WRAY: Yes. 7 MR. WILLIAMS: So essentially by 8 equally splitting the costs and the revenues 9 they've got an equal benefit of the IRR and of the 10 net present value, is that right? 11 MS. WRAY: Yes. 12 MR. WILLIAMS: And so for their 13 purposes, whether you look at case A in terms of 14 an IRR and net present value or case B, the 15 results are essentially the same, is that right? 16 MS. WRAY: Yes. 17 MR. WILLIAMS: I will take you to case 18 C. And we have party one who, clever person that 19 she is, offers to take a lower revenue in the 20 first year with the understanding that her 21 revenues will increase by 10 percent annually with 22 party two to receive the balance of the revenue. 23 Do you see that, Ms. Wray? 24 MS. WRAY: Yes. 25 MR. WILLIAMS: And what we have for 973 1 party one is the revenues increasing by 8 percent 2 each year, up to $18,864 in year 10; is that 3 right? 4 MS. WRAY: Yes. 5 MR. WILLIAMS: And this turns out to 6 be a pretty good deal from her perspective with 7 the IRR being 18 percent and the net present value 8 being $20,661 approximately; is that right? 9 MS. WRAY: Yes. 10 MR. WILLIAMS: Whereas for party two, 11 his IRR is 10 percent and his net present value is 12 less than $200; correct? 13 MS. WRAY: Yes. 14 MR. WILLIAMS: And for these parties, 15 if they were assessing the value of their 16 investment by looking at a scenario like case A 17 from kind of the partnership as a whole rather 18 than their individual results, that would give 19 them a portrayal of the results that would be 20 inaccurate, from their individual perspective; is 21 that not correct? 22 MS. WRAY: I don't know that it would 23 be inaccurate. I think even -- they can certainly 24 do the calculation that is in case C. But there 25 would be other factors as well. For example, if 974 1 one of them lives on the main floor of the house 2 and the other one lives in the upper floor, the 3 one who lives on the main floor is going to be 4 more affected by the tenants in the basement, so 5 they might take that into account when they are 6 looking for a sharing of the rents. 7 MR. WOJCZYNSKI: As Ms. Wray indicated 8 earlier, they may do a whole bunch of work to see 9 how profitable their project would be, but then 10 they would each individually do their own 11 financial statements to look exactly at what would 12 happen to them. And that is what they would rely 13 on to determine what the impacts on them as 14 individual partners would be. 15 MR. WILLIAMS: But if you were a 16 prudent person wanting to test the economic 17 viability of your investment against an 18 appropriate risk weighted hurdle rate, you would 19 not want to look at this scenario from the 20 perspective of the partnership as a whole, you 21 would want to look at it from your perspective, is 22 that not correct? 23 MS. WRAY: I think we have looked, in 24 terms of Wuskwatim, we have looked at it from the 25 Manitoba Hydro ratepayer perspective through the 975 1 financial. And the case A would be analogous to 2 the economic analysis that Mr. Wojcznski spoke 3 about. So we have looked at it both ways. 4 MR. WILLIAMS: You don't conduct a 5 hurdle rate analysis in terms of your financial 6 analysis, is that right, Ms. Wray? 7 MS. WRAY: That's correct. We could 8 do, but we haven't done, we think it presents a 9 clearer picture to give the projected financial 10 statements. 11 MR. WILLIAMS: If you were party two 12 you would certainly want to assess the economic 13 viability of scenario 8 against a hurdle rate from 14 your own perspective, would you not, Ms. Wray? 15 MS. WRAY: If I was in partnership 16 with a partner who was going to see a 10 percent 17 increase in its revenue annually then, yes, I 18 would be concerned about that risk. That is not 19 in fact the arrangement that we have though in the 20 current partnership. 21 MR. WOJCZYNSKI: I think that is a 22 good point that Ms. Wray is making about this, 23 that this presents a very hypothetical situation 24 with some very extreme differences between the 25 partners to the point where they are radically 976 1 different situations. And if you look in our 2 partnership and see that we don't have -- there is 3 a joint risk sharing in the project and we have -- 4 and for us the starting point is how is the 5 project going to do. And that has got to be the 6 starting point without reference to the 7 partnership, from an environmental acceptability 8 point of view. If you are trying to get at 9 permitting to build this fancy apartment in a new 10 place and you are going to have to get zoning or 11 something like that, the issue of how the 12 partnership is split up, the revenues and the 13 costs aren't pertinent. What is pertinent is what 14 is the project doing, and so that was from the 15 need for alternatives point of view. The first 16 thing you do is look at the project overall and 17 then the partners individually would look at their 18 own impacts and their own finances, and that is 19 what we do in the second part with the financial. 20 MR. WILLIAMS: I wonder if we can 21 turn -- if you thought the financial forecasts 22 were tedious, I wonder if we can turn to export 23 price forecasts. And I am not sure if this is 24 you, Mr. Cormie, or not. But what I would like to 25 do is start with a kind of a ten-second clip of my 977 1 understanding of the approach that you have taken 2 to the export forecasting, and then ask you some 3 technical questions, and then consider some of 4 your assumptions. Is that fine, Mr. Cormie? 5 MR. CORMIE: Mr. Wojcznski will handle 6 those forecast questions. 7 MR. WOJCZYNSKI: Just for 8 understanding sake, the two areas, the two 9 divisions, the power sales and operations and 10 power planning and development, along with 11 business analysis, Ms. Wray -- we do the 12 forecasting as a joint exercise. So the current 13 and ongoing expertise and experience of the people 14 who are actually doing the marketing and sales are 15 part and parcel of the forecasting, and then the 16 economic and business background such as gas 17 markets are brought to bear through the business 18 affairs. And then the power planning group pulls 19 it all together, and we have a lot of experience 20 in the forecasting. And the fourth ingredient is 21 we bring in external forecasts and external 22 forecasters. So it is a complex effort, but we 23 all contribute our various portions. So I could 24 start with dealing with the forecast in terms of 25 your questions, but there may be portions that 978 1 others will contribute to. 2 MR. WILLIAMS: Thank you. We will 3 start with the ten-second clip. As I understand 4 it, Hydro has developed its electricity export 5 price forecast in two steps. And in the first 6 one, a reference scenario was developed that 7 assumed business as usual from an environmental 8 perspective, but included consideration such as 9 evolving market structure, load growth, and 10 escalation and fuel prices; is that right? 11 MR. WOJCZYNSKI: Yes. 12 MR. WILLIAMS: And in order to develop 13 this reference case, Hydro obtained electricity 14 price forecasts from four different consulting 15 sources, and then combined them with other 16 information to produce the reference case. Is 17 that roughly what happened? 18 MR. WOJCZYNSKI: That is. Perhaps you 19 said it and I missed it. One additional critical 20 piece of information in the reference case was for 21 what we call an environmental business as usual, 22 where essentially it is taking what are the 23 current environmental regulations, particularly 24 for coal and gas generation in the States, and 25 what are the committed regulations that are in 979 1 place or in the process of being put in place, and 2 then building those into what we call the 3 reference, with the overall proviso that we expect 4 it will get more stringent, but that is what we 5 mean by the reference case. 6 MR. WILLIAMS: I am a little hurt, Mr. 7 Wojcznski, because I did say that it assumed 8 business as usual from an environmental 9 perspective, but I will forgive you for that. 10 MR. WOJCZYNSKI: I will listen better 11 next time. 12 MR. WILLIAMS: The four consultants, 13 just so I am clear, I will use the acronyms, one 14 was DRI-WEFA; is that right? 15 MR. WOJCZYNSKI: Yes, now called 16 Global Insights. 17 MR. WILLIAMS: And one was LCG 18 Consulting, and another one was Henwood Energy, 19 and the fourth was ICF Consultants; is that right? 20 MR. WOJCZYNSKI: Yes. 21 MR. WILLIAMS: I wonder if you can 22 turn now to tab 10 of the reference materials? Do 23 you have that? 24 MR. WOJCZYNSKI: Yes. 25 MR. WILLIAMS: In this interrogatory 980 1 CAC/MSOS asked Manitoba Hydro to provide the 2 natural gas price forecasts assumed by each of the 3 consultants in developing their electricity price 4 forecasts; is that correct? 5 MR. WOJCZYNSKI: Yes. 6 MR. WILLIAMS: If you turn to the 7 second page of that interrogatory response, you 8 can see the natural gas price forecasts provided 9 by the various consultants; correct? 10 MR. WOJCZYNSKI: Yes. 11 MR. WILLIAMS: And we will start on 12 the left-hand column with DRI-WEFA, and you can 13 see that the price they project for the year 2005 14 is $3.11? 15 MR. WOJCZYNSKI: Yes. 16 MR. WILLIAMS: And it rises to $3.41 17 by 2020; is that correct? 18 MR. WOJCZYNSKI: Yes. 19 MR. WILLIAMS: And if I wanted to do a 20 percentage increase in the real price, I would 21 divide $3.41 by $3.11; is that right? 22 MR. WOJCZYNSKI: We can ignore 23 compounding here, but in simple terms, yes. 24 MR. WILLIAMS: And that would yield 25 9.6 percent, subject to check? 981 1 MR. WOJCZYNSKI: Subject to check. 2 MR. WILLIAMS: Again, if we took the 3 Henwood scenario, again in the 2005 year we are 4 looking at $3.13, and that has grown by 2020 to 5 $3.26; is that correct? 6 MR. WOJCZYNSKI: Yes. 7 MR. WILLIAMS: Again, ignoring the 8 issue of compounding, you would agree with me, 9 subject to check, that would be a 4.2 percentage 10 increase? 11 MR. WOJCZYNSKI: Yes. 12 MR. WILLIAMS: Moving to column number 13 3, we see for ICF in the year 2005 we are looking 14 at the price projected to be $3.57, and that grows 15 to $3.85 by 2020; is that correct? 16 MR. WOJCZYNSKI: Yes. 17 MR. WILLIAMS: Again, leaving aside 18 compounding, that would amount to about a 19 7.8 percent increase, subject to check? 20 MR. WOJCZYNSKI: Yes. 21 MR. WILLIAMS: Finally, LCG, we see 22 that in 2005 they start at $3.31, and that by 2020 23 they are at $4.23. Is that right, sir? 24 MR. WOJCZYNSKI: Yes. 25 MR. WILLIAMS: And you will agree, 982 1 subject to check, ignoring the issue of 2 compounding, that that is a 27.8 percent increase? 3 MR. WOJCZYNSKI: Yes. 4 MR. WILLIAMS: So for the three 5 consultants, being Henwood, DRI-WEFA, and ICF, you 6 see a range in terms of the percentage increase 7 between 4.2 percent and 9.6 percent. Is that 8 right? 9 MR. WOJCZYNSKI: Yes. 10 MR. WILLIAMS: And with LCG, they are 11 a fair gap beyond that, being at 27.8 percent 12 increase. Is that correct? 13 MR. WOJCZYNSKI: Yes. 14 MR. WILLIAMS: Now, the LCG forecast 15 looks considerably more aggressive than the other 16 forecasts, and I wonder if you could explain to me 17 why? 18 MR. WOJCZYNSKI: Why the LCG is 19 specifically higher than the others -- I would 20 have to go back and take a look and be able to 21 tell you why that one consultant is higher than 22 the others, but what I can say -- and I can do 23 that if you want? 24 MR. WILLIAMS: If you can do that by 25 way of undertaking. 983 1 MR. WOJCZYNSKI: We can do that as an 2 undertaking. 3 4 (UNDERTAKING MH-23: Advise why LCG Consultants 5 forecast is higher than others) 6 7 MR. WOJCZYNSKI: But what I can say in 8 the meantime is that there is always a range of 9 perspectives going into the future as to what will 10 happen with gas prices. And they are quite 11 dynamic, these gas prices, there is a lot of 12 volatility. And as I said in the opening day 13 remarks, there has been a general concern in the 14 industry that gas prices are going to go up faster 15 than the forecast. These are forecasts from 2001. 16 And that has happened. So, for instance, if you 17 look at even in 2005, the prices across here were 18 $3.11 up to $3.57, with LCG being somewhere in the 19 middle. The actual gas prices for January 2005, 20 on the same basis -- I have it for January because 21 it is the forward market, but just that one month, 22 for example, the first month, $6.08. That is the 23 Globe and Mail for March 6th, the latest that was 24 available from last Friday. So the gas prices 25 have skyrocketed and are expected by most 984 1 forecasters to be very high, higher than the 2 forecasts on here. Perhaps even more important 3 than that, though, is what is happening in the 4 longer term. If you go to 2020 -- we can start 5 maybe at 2010. Our medium high gas price was 6 $3.97, and if you now look at the -- in the U.S., 7 the energy, the energy information administration, 8 which are with the Department of Energy, their 9 latest prices are, their low forecast is $3.80, 10 which is very similar to our medium/high, and 11 their medium/high is now $4.20. If you go out to 12 2020, our medium/high forecast is $4.26, and the 13 medium/low is $3.27, which sort of brackets the 4 14 that we have got on this table. But the EAI one, 15 for the year 2020, the low is $4.20, which is the 16 highest number on here, and its high is now $4.85. 17 So we have seen a dramatic upswing, both of prices 18 in the medium term, and also in the long term 19 forecasts. And LCG, one could think perhaps that 20 they were being a little bit ahead of the others 21 in terms of being able to predict that the supply 22 was not keeping up with the demand. But, 23 generally, all forecasters are beginning to look 24 at that. 25 And the last comment that I will make 985 1 on that, there was Andrew Eisman (ph), who was 2 chairman of the Energy Ventures Group, who 3 presented at a conference board January 29 in 4 Toronto, and who is saying that -- we have got 5 different opinions all over the place, but this 6 person is a credible power industry specialist 7 working in the United States, and indicating, 8 talking about $8, $10 gas. So there is a lot of 9 uncertainty, but the expectation is much higher 10 prices than we have been looking at. And one can 11 just presuppose that LCG was a little more 12 prescient than some of the others. 13 MS. WRAY: I would just like to add 14 one other source forecaster to what Mr. Wojcznski 15 has said. He quoted the U.S. Energy Information 16 Administration forecast. There is also a National 17 Energy Board forecast that was published in 18 July 2003, and their low scenario essentially had 19 a U.S. gas price in 2020 which is very, very 20 similar to what LCG had for their reference price 21 in the table referenced by Mr. Williams. So this 22 tends to support what Mr. Wojcznski has just said, 23 and not just one forecaster, but others too have 24 forecasted an increase in the price of natural 25 gas. 986 1 MR. WOJCZYNSKI: That may be very 2 pertinent to your question, and rather than just 3 talking about other forecasts, because you did ask 4 about the LCG one, there is a very fundamental 5 issue, and I know that LCG was wrestling with it, 6 so I could answer perhaps generically. There is a 7 race between demand and supply. Whenever you look 8 at a commodity market, that is what you are 9 talking about. And what has been happening is 10 there has been a decline in North America in the 11 ability of the existing basins, for instance, the 12 Alberta sedimentary basin, the medium and shallow 13 Gulf of Mexico basin, other existing basins, to 14 increase their gas production. What has happened 15 in the past is when there was a good market price 16 immediately more wells are drilled. I used to be 17 involved in the industry, I used to be in the gas 18 industry myself, so I like talking about this. 19 More wells were drilled, and then there was more 20 gas produced, and then the gas price would 21 eventually come down, as in any commodity market, 22 because there is an increase in supply relative to 23 demand. What has happened in the last number of 24 years is the ability of the existing basins has 25 diminished. And so the per well drilled in the 987 1 existing structures, there is less and less gas 2 coming out, and the life of the well is smaller 3 and there is much more drilling required. So the 4 new gas supply that people are looking to is now 5 going to have to come from offshore, from the 6 north, and very deep wells in Gulf of Mexico, 7 there is Sable Island kind of possibilities. They 8 are very expensive and they are not sufficient, 9 when you take the decline in the existing basins, 10 the increase in these new basins, they are not 11 sufficient to keep up with the demand for natural 12 gas in North America. 13 And actually the electricity sector is 14 the biggest area of demand growth. So what is 15 happening is that the demand in North America is 16 outstripping the supply, and it is a race between 17 those two factors. The one offset in all of that 18 is liquified natural gas from offshore costs 19 around three and a half, four bucks, a MM BTU, 20 something in that order, for it to be economically 21 viable. You need huge infrastructure to do that. 22 You need ships, you need liquified natural gas 23 facilities in Africa and Arabia, and then you need 24 receiving stations, essentially ports, specialized 25 ports that take the liquified natural gas and then 988 1 safely take it over and deliquify it so it is a 2 gas that can go into the pipelines. These are 3 billion dollar, multi-billion dollar enterprises, 4 and they don't like to have them in the middle of 5 cities in case there are explosions and things. 6 The feeling is in the long term, one 7 of the ways that the increase in gas price will be 8 met, aside from the MacKenzie Valley pipeline kind 9 of stuff, Beaufort Sea stuff, is through the 10 liquified natural gas. But that is very costly as 11 well. 12 So there is this tension between these 13 two factors, and all of the consultants are 14 wrestling with that, and it appears that what is 15 happening in the race is being lost on the supply 16 side. There has been, both in oil and gas, a 17 devaluation of the reserves in the ground, and the 18 assets. So there is a lowering of the forecast as 19 to what North America gas industry can supply, and 20 an increase in the demand. 21 MR. WILLIAMS: Mr. Wojcznski, thank 22 you for that very thorough answer. I see Mr. 23 Harper taking lots of notes. You mentioned the 24 EIA analysis. Would you provide us with the 25 reference for that? 989 1 MR. WOJCZYNSKI: We will have to 2 undertake to do that. That is the very recent 3 one. 4 5 (UNDERTAKING MH-24: Provide reference for 6 EIA analysis) 7 8 MR. WOJCZYNSKI: I should add that 9 where that comes from is we do an annual update, 10 and this is -- we are in the process of that, so 11 we try and get as many forecasts as we can, and 12 that is one of them. Anyway, we will take that as 13 an undertaking. 14 MR. WILLIAMS: That was a helpful 15 segue, Mr. Wojcznski. In terms of your annual 16 update, is it completed yet? 17 MS. WRAY: Not yet. 18 MR. WILLIAMS: When will it be 19 completed? 20 MS. WRAY: I think it begins internal 21 review this month and next. So probably six to 22 eight weeks would be my guess. 23 MR. WILLIAMS: Based on the answer 24 that you have already provided, I think I know the 25 answer to this, but I take it that your 990 1 expectation is that the new gas price forecasts 2 will be materially different from the current one? 3 MS. WRAY: It will be higher, yes. In 4 a nutshell, I think, and Mr. Wojcznski alluded to 5 this, the medium/high case that we had in our 2002 6 filing would now be equivalent to base case in our 7 current forecast, very roughly. 8 MR. WILLIAMS: Thank you for that 9 answer. I am trying to get a bit more -- maybe 10 now finally Mr. Cormie, this is your chance. If 11 you can just elbow the gentleman beside you. 12 My understanding is that Hydro markets 13 three export products, being long term, firm on 14 peak opportunity, and off peak opportunity; is 15 that correct? 16 MR. CORMIE: At least those three 17 products, Mr. Williams. 18 MR. WILLIAMS: Go on. 19 MR. CORMIE: We sell system 20 participation power, we sell energy, capacity, 21 reserves, dependable power, interruptible power, 22 we can, whatever the customers needs are, we can 23 construct a product that will serve those. 24 MR. WILLIAMS: Thank you. In terms of 25 the Wuskwatim product, and I don't think that you 991 1 need to turn there, but my reference is CAC second 2 round NFAAT 13b, but my understanding is that your 3 expectation is that the 1250 GWh of dependable 4 output will be sold as a long term 5 by 16 5 product; is that right? 6 MR. CORMIE: Yes, we are assuming 7 that. 8 MR. WILLIAMS: And with reference to 9 the CAC/MSOS second round 12b, at a system level 10 after shaping, my understanding is that there will 11 be an average of 1,266 GWh available on peak and 12 264 GWh available off peak. Is that right? 13 MR. CORMIE: Yes, that's correct. 14 MR. WILLIAMS: Now, again going -- you 15 might want to keep that there. My understanding 16 is that the annual generation from Wuskwatim is, 17 the average annual generation from Wuskwatim is 18 1,530 GWh; is that right? 19 THE WITNESS: Yes, that's correct. 20 MR. WILLIAMS: Can you confirm that of 21 this 1,530 GWh, 1,250 will be sold as a long term 22 firm 5 by 16 power until it is needed for domestic 23 purposes? 24 MR. CORMIE: The 1,250 is the 25 additional energy that will be made available on a 992 1 firm basis and we will sell that. It may not be, 2 you know, the contract may go for longer than the 3 time for which it appears surplus to the system. 4 MR. WILLIAMS: Now, am I right in 5 assuming that the total on peak power available to 6 the system is 1,266 GWh? 7 MR. CORMIE: Yes. 8 MR. WILLIAMS: So, Mr. Cormie, if I 9 subtracted -- if I took the total on peak power 10 being 1,266 GWh, and subtracted from that the 11 average energy available, or subtracted from that 12 the power that is going to be sold as long term 13 firm, being 1,250 hours, does that mean that the 14 average energy available for on peak opportunity 15 sales is only 16 GWh, is that right? 16 MR. WOJCZYNSKI: Mr. Williams, this 17 table -- first of all, just a clarification, this 18 is reference to generation, so you will remember 19 on Wednesday we had this very interesting and 20 stimulating discussion about north versus south 21 references. This was reference to northern 22 generation. So we have down here 1266 GWh for the 23 on peak based on the 6 by 16. You would have to 24 take ten percent off for the actual sales, but 25 aside from that qualifier, what we assumed in the 993 1 earlier years, say the first ten years or so, is 2 that we would take a 200-megawatt sale or so and 3 sell all of the on peak dependable energy as a 5 4 by 16. And we would take the rest of the 5 dependable and also sell it in the on peak. So 6 roughly in the order of, the exact number is not 7 critical, 300 hundred megawatts of on peak 5 by 8 16, so that all of the dependable energy would be 9 sold essentially as 5 by 16. And then what we 10 would sell in the opportunity market is we would 11 sell the non-dependable energy. That is the 12 energy that is greater than dependable in most 13 years. 14 MR. WILLIAMS: Would I be right in 15 assuming that the long term firm is over 16 80 percent of the total output? 17 MR. WOJCZYNSKI: 82.24, yes. I said 18 300 megawatts. You get into whether it is 5 by 16 19 or 6 by 16, let's use the 300 as a big round 20 number. Let's not be precise. It is really a bit 21 more than that if you go by 5 by 16. 22 MR. WILLIAMS: Based on that 82.24 it 23 is safe to say that most of the output will be 24 sold as firm long term sales, is that right? 25 MR. WOJCZYNSKI: Yes. 994 1 MR. WILLIAMS: I am not sure which of 2 those three gentlemen at the right side of the 3 table to direct this question to, but what I am 4 looking to get a sense of is what Hydro considers 5 to be the driver for long term firm prices? And 6 as I understand it, utilities typically consider 7 long term firm purchases as an alternative to 8 building their own generating capacity, is that 9 right? 10 MR. CORMIE: Yes, that's correct. 11 MR. WILLIAMS: So, as a result the 12 cost of constructing new generation is the 13 competition for Manitoba Hydro's long term firm 14 exports, would that be fair? 15 MR. CORMIE: Yes, that's correct. 16 MR. WILLIAMS: And in the map area, 17 gas fired combustion turbines, whether they are 18 CCCTs or SCCTs are expected by many observers to 19 make up most of this new generation, would that be 20 fair? 21 MR. CORMIE: Yes, that's correct. 22 MR. WILLIAMS: And is that Hydro's 23 assumption as well? 24 MR. WOJCZYNSKI: We don't have an 25 absolute assumption exactly. We know that a few 995 1 years ago the majority of natural gas that a lot 2 of people were looking at was going to be combined 3 cycle gas turbine, that is for non peaking 4 operation, for sort of more on peak capacity for 5 many hours. But there has been actually a bit of 6 a shift over the last couple of years where with 7 natural gas prices being so high, that there is a 8 shift to -- and also because the Bush 9 administration isn't implementing Kyoto or 10 anything like Kyoto at this time, a combination of 11 the two, there is a resurgence in interest in coal 12 generation. So both of them are going in, and I 13 wouldn't say that we have a absolute opinion as to 14 whether it was mainly coal or mainly gas, it was 15 going to be a significant amount of both of those. 16 And it all depends on what happens in the natural 17 gas price forecasts and to environmental 18 regulation. But the majority of the forecasts 19 that were done two years ago that were the bases 20 did assume combined cycle gas turbines. 21 MR. WILLIAMS: So from Hydro's 22 perspective the price competition for its firm 23 exports would be the annualized costs of 24 constructing and operating either a gas fired 25 station or perhaps a coal fired station, is that 996 1 fair? 2 MR. WOJCZYNSKI: Yes. 3 MR. WILLIAMS: And I understand that 4 these costs can be broken down into fixed cost 5 components, i.e. capital costs and fixed O&M 6 costs, operation and maintenance, as well as 7 variable cost components. 8 MR. WOJCZYNSKI: Yes. 9 MR. WILLIAMS: Thank you. Now, moving 10 along -- I will wait until Mr. Cormie is finished. 11 Mr. Wojcznski, moving along the path 12 of the competition being gas fired generating 13 stations, you have just indicated that the -- and 14 it is generally agreed, I believe, that the gas 15 prices will increase faster than the general rate 16 of inflation, is that right fair? 17 MR. WOJCZYNSKI: Yes. 18 MR. WILLIAMS: And you've covered a 19 lot of those issues previously. Would it be 20 reasonable to expect as well the capital cost 21 component of a new gas generation to escalate at 22 about inflation, would that be fair? 23 MR. WOJCZYNSKI: Roughly speaking, 24 yes. 25 MR. WILLIAMS: So in terms of Hydro's 997 1 reference price, would it be fair to say that one 2 would expect the price escalation for long term 3 firm sales of electricity to be somewhat higher 4 than the rate of inflation, but less than the 5 escalation forecast for natural gas prices, would 6 that be a fair assumption? 7 MR. WOJCZYNSKI: Depends on what other 8 elements are going into it. You would have to, 9 for instance, put in the environmental premium. 10 And so natural gas itself doesn't capture all of 11 the environmental regulatory requirements. The 12 obvious one and the important one to talk about is 13 greenhouse gas management. So if you have a 14 requirement for greenhouse gas permits, that isn't 15 included in the natural gas price, that is 16 something that you add on to it, and that could 17 bring the escalation for the long term firm up to 18 or exceed the escalation for the natural gas. You 19 have to look at a whole bunch of factors. 20 MR. WILLIAMS: Just to be clear, I was 21 speaking of the reference price so -- 22 MR. WOJCZYNSKI: I didn't realize the 23 strict reference. 24 MR. WILLIAMS: I just feel undervalued 25 today. In terms of the reference price one would 998 1 expect the price escalation for long term firm 2 sales of electricity to be somewhat higher than 3 the rate of inflation but less than the escalation 4 forecast for natural gas prices, would that be 5 fair? 6 MR. WOJCZYNSKI: I am trying to not 7 undervalue what you have said, but I still have to 8 say no. The reason is that the starting point for 9 the long term firm isn't just being -- it is like 10 an escalation from what we are doing and have 11 recently seen, and that has been influenced by 12 other elements in the market, including the fact 13 that coal generation has been available. So 14 increasingly as we are going into the future, the 15 price is increasingly being set by the gas turbine 16 kind of price, and so you have got other factors 17 coming into place in our long term pricing rather 18 than just purely gas turbine price, capital prices 19 and fuel prices, you have other market factors 20 which are causing a bit of an increase. But to 21 the degree that our long term firm price is 22 established by the gas turbines, I would agree 23 with that. 24 MR. WILLIAMS: Thank you for that 25 answer. Mr. Chair, this would be a perfect time 999 1 for a break, if that is appropriate. I am moving 2 on to a new subject that I anticipate will take 3 about 40 minutes or so. 4 THE CHAIRMAN: In that case we shall 5 take a break at this time. We will reconvene at 6 10 after 3:00. 7 8 (PROCEEDING RECESSED AT 2:55 P.M. AND 9 RECONVENED AT 3:10 P.M.) 10 11 ( 12 (HEARING RECESSED FROM 2:55 P.M. 13 UNTIL 3:10 P.M.) 14 15 THE CHAIRMAN: Ladies and gentlemen, 16 can we get back to our seats, please. Just to 17 provide time for everyone to find their place, I 18 will throw the ball to Mr. Grewar to begin. 19 MR. GREWAR: Thank you, Mr. Chairman. 20 Just in the interest of trying to keep the exhibit 21 reference as close to the transcript as possible, 22 I would like to enter a number of exhibits that 23 Mr. Williams has tendered. 24 Entering as CAC/MSOS 1000 would be 25 financial results for 2020, Wuskwatim IS. 1000 1 Exhibit CAC/MSOS 1001, financial 2 results for low export price scenario. 3 CAC/MSOS 1002, financial results for 4 high export price scenario. 5 And finally CAC/MSOS 1003, NPV and 6 IRR, illustrated example with attached scenarios 1 7 through 8. 8 THE CHAIRMAN: Thank you, Mr. Grewar. 9 And your turn, Mr. Williams, to carry on. 10 MR. WILLIAMS: Thank you, Mr. Chairman 11 and members of the panel. 12 I wonder if I can direct Hydro's 13 attention to tab 11 of the CAC/MSOS book of 14 reference. That is interrogatory CEC/MH/NCN/first 15 round/NFAAT/33a. 16 In this interrogatory, if Hydro can 17 confirm that Hydro was asked to explain its 18 process to identify and assess risk and to list 19 all the risks relating to the Wuskwatim project, 20 and an assessment of the probability of each risk 21 occurring; is that correct? 22 MR. WOJCZYNSKI: Yes. 23 MR. WILLIAMS: And in Hydro's 24 response, you note a number of sensitivities that 25 were evaluated such as major system drought and a 1001 1 lower system domestic load forecast; is that 2 correct? 3 4 MR. WOJCZYNSKI: Yes. 5 MR. WILLIAMS: And referring to lines 6 18 through 21 of that response, you note that for 7 some of these sensitivities it is possible to 8 estimate a probability of occurrence, correct? 9 MR. WOJCZYNSKI: Yes. 10 MR. WILLIAMS: For other sensitivities 11 such as those which would result from policy 12 decisions are those which are hypothetical in 13 nature, probabilities cannot be estimated; is that 14 right? 15 MR. WOJCZYNSKI: Yes. 16 MR. WILLIAMS: I wonder if you can 17 indicate what you mean by "policy decisions"? 18 MR. WOJCZYNSKI: There may be policy 19 decisions by the United States government to 20 ratify Kyoto or not, for example. 21 MR. WILLIAMS: Can you explain why 22 policy -- the likelihood of policy decisions like 23 that cannot be estimated? 24 MR. WOJCZYNSKI: When I am speaking 25 about estimated, we are talking about in a 1002 1 quantitative fashion where if you look at it from 2 a scientific or engineering point of view or a 3 mathematical point of view -- let's say, droughts 4 or floods or temperature variations in weather, 5 let's say, due to year-to-year weather or capital 6 cost changes, when you have lots of different 7 factors happening and they are all interacting 8 from a large set of numbers and data, you can 9 develop some sort of probabilistic indication of 10 them. So, that's what we are referring to here. 11 In terms of the policy decisions, 12 there is no mathematical way to determine the 13 likelihood of Russia or the United States 14 ratifying Kyoto or all the other kinds of 15 decisions that a government in Manitoba, Canada or 16 the United States might take. 17 One could jugdmentally say high, 18 medium or low, but it is not a scientific, 19 quantitative estimate and that's what we are 20 referring to in here. 21 MR. MAYER: (INAUDIBLE) 22 MR. WOJCZYNSKI: But, even if there 23 was a republican government, the United States is 24 committed into entering the others in what is 25 called the "second budget period". Even a 1003 1 republican government may very well institute, not 2 Kyoto, but a Manitoba greenhouse management scheme 3 down the road. So, even the polling results don't 4 give us that. 5 MR. WILLIAMS: Thank you, 6 Mr. Wojczynski, Mr. Mayer and Mr. Sergeant for the 7 insight you have all shared with us. 8 I wonder, Mr. Wojczynski, just to go 9 back to some of your earlier comments, my 10 understanding was that you were contrasting things 11 like the confidence you can have in estimating the 12 likelihood of a drought versus a policy decision. 13 That was one of the references you made; is that 14 right? 15 MR. WOJCZYNSKI: Yes. Where in 16 certain -- I was trying to -- it is not so much 17 the confidence. It is the ability to 18 quantitatively estimate something. The things you 19 can quantitatively estimate are those where the 20 variability can be described statistically and you 21 have data. It may be very well that you have just 22 as much confidence in something that you can't 23 numerically estimate as things that you can't. It 24 is just your ability to provide a quantitative, 25 statistical estimate that we are referring to 1004 1 here. 2 MR. WILLIAMS: Thank you for that. 3 Using the drought example, you have -- 4 in terms of data, you probably have 86 years -- at 5 least in terms of the system, in terms of major 6 years of experience, in terms of data points. 7 MR. WOJCZYNSKI: More than 86 8 actually. That is what is in the flow record that 9 is used in the SPLASH simulations, but we have 10 closer to 100 -- just slightly less than 100 years 11 of data. But, anyways, in there. 12 MR. WILLIAMS: I guess another example 13 where you have many years of data would be in 14 terms of a load forecast, where you have many 15 years of data and you also have many years in 16 which you can consider the relationship of the 17 load with the growth of the Canadian economy; 18 would that be right? 19 MR. WOJCZYNSKI: That's sort of right, 20 but I can't just say "yes" to that because 21 actually for load forecasting, we don't just take 22 correlations with other factors. We look in 23 individual end uses and we do some detailed 24 analysis as to what happens in various end uses 25 and various subsectors and what is happening with 1005 1 the large industrial loads and we have some 2 individual -- company-specific information we 3 utilize, so there is a lot of detailed 4 information. 5 But, where we do have statistical 6 information on the load that we do utilize is how 7 much the load varies with temperature, for 8 example, so if it is colder or hotter. We use 9 statistical information more purely for that, yes. 10 MR. WILLIAMS: Mr. Wojczynski, just 11 going back to the statistical -- or estimate 12 probabilities in terms of a policy or political or 13 regulatory decisions, I guess a good example that 14 we might consider is changes that were made in the 15 Ontario energy market under the former Harris 16 government in which the government said it would 17 move towards market-based prices and investigators 18 began making plans accordingly, but when prices 19 started to rise, the government backtracked. Are 20 you familiar with that scenario? 21 MR. WOJCZYNSKI: We are very familiar 22 with what happens in our export markets, including 23 Ontario. 24 MR. WILLIAMS: So, even when a policy 25 decision is made, there is always the opportunity 1006 1 or the chance that the party making that decision 2 will back away from that decision; is that right? 3 MR. WOJCZYNSKI: Yes. 4 MR. MAYER: Depending how close they 5 are to an election. 6 MR. WOJCZYNSKI: But, you will notice 7 even in that case that that policy reversal is 8 being reversed slowly. 9 MR. WILLIAMS: Which doesn't do much 10 for the confidence of people in that market, 11 correct? 12 MR. WOJCZYNSKI: It doesn't perhaps do 13 much for the confidence in the short-term, but it 14 does add confidence. 15 And then in the long-term, if there is 16 an appropriate solution when looking at all the 17 parameters that regardless of the political stripe 18 that there is a tendency to gravitate towards that 19 in the very long-term. 20 MR. WILLIAMS: And so one of the 21 issues would be just how long, correct? 22 MR. WOJCZYNSKI: That would be one of 23 the issues, yes. 24 MR. WILLIAMS: I want to move to an 25 outlook of the North American electricity 1007 1 industry. Some of the material that I am 2 referring to -- I don't think you need to pull it 3 out, but I have made reference to the overview of 4 the North American electrical industry found at 5 attachment 5 of Volume 1 of the first submission. 6 You will agree with me that 7 projections for developments and energy markets 8 are, with any forecast, subject to uncertainty; is 9 that fair? 10 MR. WOJCZYNSKI: Yeah. 11 MR. WILLIAMS: Would the energy 12 industry -- there is a variety of factors and you 13 have referred to some and many interrelated, 14 affecting both the supply and demand for various 15 energy forms in North America, correct? 16 MR. WOJCZYNSKI: Yes. 17 MR. WILLIAMS: And some of the 18 examples of these would include levels of economic 19 activity, demographic change, equality issues, 20 legislative and regulatory initiatives and 21 international developments; is that right? 22 MR. WOJCZYNSKI: Those amongst others, 23 yes. 24 MR. WILLIAMS: Okay. In going back to 25 some of the factors that affect supply and demand. 1008 1 You will agree with me that some of 2 them, such as the level of economic activity or 3 demographic change are more susceptible to an 4 estimate of probabilities than others such as 5 legislative or regulatory initiatives; is that 6 right? 7 MR. WOJCZYNSKI: That's true, as I 8 indicated from the numerical, quantitative, 9 statistical point of view. But, you can make 10 reliable judgments about other factors without 11 having the ability to do a statistical, 12 quantitative estimate. 13 MR. WILLIAMS: Thank you. I guess 14 then -- we have already discussed this in the 15 context of natural gas prices, but even in the 16 energy industry, even when there are statistical 17 estimates, it is clear that experts don't always 18 agree in terms of the numbers; is that right? 19 MR. WOJCZYNSKI: Yes. 20 MR. WILLIAMS: You will also agree 21 with me that sometimes experts just change their 22 minds in terms of forecast; is that right? 23 MR. WOJCZYNSKI: Experts -- 24 MR. WILLIAMS: Unlike lawyers. 25 MR. WOJCZYNSKI: I never comment on 1009 1 lawyers. Too many of them are my friends. 2 The experts will continually update 3 their estimates and perspectives on the future 4 using the new information that is coming up. 5 So, experts do change their numbers 6 based on the latest information. I wouldn't want 7 to give the impression that they change them 8 willy-nilly. They change them for some good 9 reasons. 10 The future is unknowable in the sense 11 of being a precise idea of what is going to happen 12 in the future. That is fundamental to everything 13 we do as human beings. 14 MR. WILLIAMS: In particular, the 15 industry that you are in? 16 MR. WOJCZYNSKI: Our industry, just 17 like all other industries, even if you are talking 18 about wheat, nickel, oil, gas, coal, steel, oats, 19 airplanes, buses. 20 MR. WILLIAMS: There is no sure thing; 21 is that right? 22 MR. WOJCZYNSKI: That's true. 23 MR. WILLIAMS: Now, the U.S. 24 Department of Energy, just as an example, where 25 experts change their mind, you will agree with me 1010 1 that in their annual energy outlook for 2003, they 2 project that in the post 2010 period, most new 3 generating capacity in the MAPP U.S. region will 4 be coal fired; is that correct? 5 MR. WOJCZYNSKI: I am sorry. I missed 6 the beginning reference to that. Who was doing 7 that? 8 MR. WILLIAMS: The U.S. Department of 9 Energy in their annual energy -- 10 MR. WOJCZYNSKI: Okay, yes. Yes, 11 that's correct. 12 MR. WILLIAMS: And that represents a 13 departure from their recent outlooks for the MAPP 14 region; is that right? 15 MR. WOJCZYNSKI: I -- 16 MR. WILLIAMS: The projection that 17 coal would be the most, post 2010, the new 18 generating capacity will be coal fired, represents 19 a departure from the recent department outlook of 20 the U.S. Department of Energy; is that right? 21 MR. WOJCZYNSKI: I am sorry, the 22 recent one? I am sorry, Mr. Williams, I am bit 23 confused as to the references. Maybe I should 24 have pulled it out. You said I didn't need to 25 pull out those references, but I am beginning to 1011 1 think that maybe I should have. 2 You are referencing an old and new 3 Department of Energy one; which one is which? I 4 am confused, sorry. 5 MR. WILLIAMS: It is my problem for 6 the question, Mr. Wojczynski. My apologies. 7 If you are looking for a reference, it 8 is attachment 5, page 37 of 50. That's the April 9 submission. 10 MR. WOJCZYNSKI: Yes, now I am on 11 board. 12 So, you're saying that in the 2000 -- 13 your question is in the 2003 outlook reference 14 which says it is coal fired, that is a departure 15 from the earlier, meaning the 2002 one, yes. 16 MR. WILLIAMS: That would also be 17 different from the views of three of the 18 consultants who provided you with their opinions 19 in terms of building the reference case; is that 20 correct? 21 MR. WOJCZYNSKI: Yes, but the 22 consultants generally and DRI-WEFA -- or Global 23 Insights are the best example of this. They all 24 recognized that coal and natural gas were nip and 25 tuck in terms of their economics in the reference 1012 1 case. 2 So, whether it was coal or gas, it 3 could flip very easily depending on the exact 4 parameters that were unfolding. 5 So, that is a change that we are 6 moving to, more coal than natural gas, but it is 7 not a huge surprise. It is not -- we don't see it 8 as a radical change in the situation. 9 MR. WILLIAMS: Right. Just so I am 10 clear though, if I were to read the forecasts of 11 your four consultants from -- that was provided in 12 this evidence, one of them DRI-WEFA, would have 13 put more emphasis on coal than the other three; is 14 that correct? 15 MR. WOJCZYNSKI: Yes, that is correct. 16 As a matter of fact, their reference case did 17 assume coal rather than gas, but it was nip and 18 tuck as I said. The others also did assume some 19 coal, but with not as high a percentage. 20 MS. WRAY: I do also have some notes 21 from the very latest forecast for the EIA for 2004 22 and they anticipate that over 60 percent of the 23 new electric generating capacity required over 24 their forecasting period will be natural gas 25 fired, combined cycle or combustion turbine 1013 1 technology. 2 I don't have the comparative number 3 for their 2003 forecast, but certainly in this 4 latest one they are acknowledging that the gas 5 fired generation will play a major role. 6 MR. WILLIAMS: And you don't have the 7 number for the forecast for the MAPP region 8 specifically, do you, Ms. Wray? 9 MS. WRAY: No, I would have to see if 10 that could be found. 11 MR. WILLIAMS: Because it may well be 12 that while they expect natural gas to be more 13 important nationally, there may be specific 14 regions that they expect coal to be a more 15 attractive option; is that right? 16 MS. WRAY: Well, certainly in the 17 parts of the MAPP region, there is a good coal 18 supply. But those, as I understand it, those 19 utilities are also putting in natural gas 20 generation as well. 21 MR. WILLIAMS: Mr. Wojczynski, I just 22 want to carry on with the question of the 23 uncertainty in this market. 24 Turning to coal -- or staying with 25 coal, I guess there is a cloud or an acid rain 1014 1 cloud or something hanging over the head of coal 2 and the concern with the continued uncertainty in 3 terms of future environmental regulations 4 respecting NOx SO2, in particular, it is mercury 5 and CO2, and its concerns for its impacts for 6 additional coal fired generation; is that right? 7 MR. WOJCZYNSKI: Yes, absolutely. 8 MR. WILLIAMS: Would it also be the 9 case though as a bit of a counter weight that some 10 U.S. legislative proposals contain both investment 11 and production credits related to clean coal 12 technologies; would that be right? 13 MR. WOJCZYNSKI: That is correct. 14 MR. WILLIAMS: Would it be fair to say 15 that whatever variants exist in outlooks for new 16 electricity generating capacities is commonly and 17 generally accepted that coal fired power plants 18 are expected to remain the major source of U.S. 19 electricity for the long-term; would that be fair? 20 MR. WOJCZYNSKI: That's fair on the 21 basis that today the vast majority in generation 22 in the United States is coal and coal life is 23 being extended, except there are retirements 24 happening, but a large portion of that life is 25 being extended and units are being refurbished. 1015 1 So, we fully expect the majority in The States 2 will be coal, that is very true. 3 MR. WILLIAMS: So, coal will continue 4 to stay dominant in the U.S. industry? 5 MR. WOJCZYNSKI: Yeah, roughly half 6 will be expected to be coal and that was part of 7 our forecast underlying -- that was one of the 8 underlying assumptions in all the forecasts we 9 utilized. 10 MR. WILLIAMS: Mr. Wojczynski, just 11 moving on from that point, it is clear that coal 12 is dominant or very powerful in the U.S. market, 13 and I guest that also makes it likely that coal 14 interests will be active in opposing greenhouse 15 gas initiatives and other initiatives aimed at 16 cleaner air; would that be fair? 17 MR. WOJCZYNSKI: Yes, as they have 18 been and they will continue to be. 19 MR. WILLIAMS: And so one of the 20 unknowns, given the strength of the coal industry 21 in the United States, is just how successful they 22 will be in lobbying their state legislators and 23 their federal politicians; is that correct? 24 MR. WOJCZYNSKI: Yes. The ability of 25 coal the industry to lobby the state and federal 1016 1 governments to not put in place more stringent 2 environmental standards, will have an influence on 3 what happens. It is not the only influence, 4 obviously. 5 But, if they were very influential and 6 nothing else were put in place for environmental 7 regulation of coal and natural gas, aside from 8 what is there already in the business as usual and 9 what is there today, then what we would see is no 10 environmental premium or reference case that we 11 have talked about before, being the export price, 12 and Wuskwatim would still be economic under that 13 scenario. But, that is a risk scenario as opposed 14 to what we expect to have happen. 15 MR. WILLIAMS: And the reference price 16 is again based on a variety of estimates and there 17 is no certainty that would be the price you would 18 achieve? 19 MR. WOJCZYNSKI: There is no 20 certainty, but there is an expectation of 21 probability that we can say is there. So, we 22 expect -- there is no certainty, no, but there is 23 a significantly greater likelihood that the price 24 will be higher than the reference than lower. 25 That we can say with confidence. There is no 1017 1 absolute certainty, no, which is why we do the 2 full range of analyses which we presented from day 3 one with all the many different price scenarios. 4 MR. WILLIAMS: And which goes to your 5 conclusion on day three I believe it was, that 6 while Wuskwatim may be a low to medium risk 7 project, the hurdle rate or -- is probably in the 8 upper half of that range; is that right? 9 MR. WOJCZYNSKI: Somewhere in the 10 upper half; something like that. 11 MR. WILLIAMS: So, by somewhere in the 12 upper half that is somewhere between 8 and 10 13 percent; is that your view? 14 MR. ADAMS: Manitoba Hydro would 15 consider a hurdle rate in the range of 8 to 10 16 percent for a project of the risk profile of 17 Wuskwatim to be very attractive. 18 MR. WILLIAMS: Just so I am clear, 19 Mr. Adams, your view of an appropriate hurdle rate 20 for Wuskwatim is 8 to 10 percent; is that right? 21 MR. ADAMS: Yes. 22 MR. WILLIAMS: Thank you. 23 MR. ADAMS: On the base case scenario. 24 MR. WILLIAMS: Mr. Wojczynski, I do 25 want to just stay with this -- with the example of 1018 1 the -- of big energy and its influence on 2 regulatory or political decisions for just one 3 more moment. If you are looking for the 4 reference, it is page 46 of 50 approximately, 5 attachment 5. 6 My understanding -- and I am referring 7 to Excel Energy -- 8 MR. WOJCZYNSKI: What was that 9 reference? 10 MR. WILLIAMS: It's about page 46 of 11 50 in attachment 5, Mr. Wojczynski. This is the 12 April 1st submission of -- 13 MR. WOJCZYNSKI: Yes, I have that, 14 yes. 15 MR. WILLIAMS: -- of Hydro. 16 I just want to follow up the theme of 17 Excel Energy. My understanding is that it is the 18 largest generator in MAPP U.S. with about 23 19 percent of all generating capacity; is that right? 20 MR. WOJCZYNSKI: Yes. 21 MR. WILLIAMS: It also represents the 22 largest share of MAPP U.S. energy requirements at 23 27 percent; is that correct? 24 MR. WOJCZYNSKI: Yes. 25 MR. WILLIAMS: My understanding is 1019 1 that Excel operates a number of nuclear power 2 plants in that region; is that correct? 3 MR. WOJCZYNSKI: Yes. 4 MR. WILLIAMS: And there has been 5 controversial issues relating to the storage of 6 nuclear waste; is that right? 7 MR. WOJCZYNSKI: Yes. 8 MR. WILLIAMS: My understanding is 9 that the initial plan for 2002 would be an 10 examination of legislation dealing with the 11 storage of nuclear waste, but that plan was 12 deferred; is that right? 13 MR. WOJCZYNSKI: What happened is 14 there actually was an analysis and proceedings in 15 Minnesota on that and there was some extension to 16 the life of the life of Dry Cask temporary storage 17 facilities and the nuclear waste storage 18 facilities and built into that -- and that part of 19 deal was that they were then required to put in 20 additional wind generation to do that. 21 So, when you say it was delayed, I am 22 not quite sure what you mean by that, but that's 23 what happened. 24 MR. WILLIAMS: Okay. Is it your 25 understanding that Excel is applying to ask the 1020 1 Minnesota Legislature for new legislation 2 permitting increased storage of nuclear waste? 3 MR. WOJCZYNSKI: That's what I was 4 referring to and part of it is a trade-off that 5 they are going to have to put in additional wind 6 generation as -- in effect, subsidize the wind 7 generation with the nuclear. That's a deal 8 effectively they have -- call it a 9 multi-stakeholder deal, if you like. 10 Maybe further to my earlier comments, 11 there were -- for instance, you were asking about 12 the gas and coal generation, EPRI, who are one of 13 the foremost organizations: The Electric Power 14 Research Institute. The organization that all the 15 major generation companies, research organizations 16 and other institutions belong to. 17 As we indicated in 18 CNF/NFAAT/360a/round 2, we talk about the amount 19 of gas fired generation and we indicate that the 20 amount has decreased from the earlier times. But 21 that gas fired generation is still very much in 22 play for projects into the future. 23 You just mentioned Excel. Well, they 24 just received approval to switch over some of 25 their coal to natural gas units at some 1021 1 substantial cost in Minnesota. 2 So, what we are looking at into the 3 future is a mixture of coal and natural gas going 4 in, even though the percentages of the mix are 5 changed from the couple years ago. 6 MR. WILLIAMS: Mr. Wojczynski, I am 7 glad to say that we are nearing the end of what 8 has been a painful exercise, at least on my part, 9 although I know you love it. 10 MR. WOJCZYNSKI: It is fun, yeah. 11 MR. WILLIAMS: I want to turn just for 12 a few minutes to the uncertainties in terms of the 13 development of the competitive market in the 14 United States. 15 I guess the starting point is it is 16 generally considered that the development of 17 standard market design or SMD, renewable portfolio 18 standards and reliability legislation all have the 19 potential to affect general transmission 20 investments in the industry; is that fair? 21 MR. WOJCZYNSKI: There would be an 22 influence of those kind of regulations, yes. 23 MR. WILLIAMS: And the expected price 24 forecast for Hydro is based on a set of 25 assumptions for factors such as evolving market 1022 1 structure for the electricity industry, along with 2 low growth and escalation of fuel prices, correct? 3 MR. WOJCZYNSKI: Our reference case 4 actually doesn't have a significant benefit from 5 further evolution such as in the area of standard 6 market design. 7 What we would expect, actually, if 8 significance steps forward were made in those 9 areas, we would see our market do better than we 10 might otherwise have forecast. 11 Also, our forecast does not assume 12 that we will get the benefit. Whether it is the 13 reference case or the other ones -- the other 14 levels with the environmental premiums don't 15 assume that we benefit from renewable portfolio 16 standards, for example. The assumption is that 17 what we are doing is competing head-on with coal 18 and natural gas. 19 MR. WILLIAMS: I want to just turn 20 very quickly to a final subject in this area, 21 which is legislative efforts to initiate higher 22 standards in terms of NOx. 23 Mr. Wojczynski, I am just wondering 24 are you familiar with the efforts to create, by 25 the Environmental Protection Agency or EPA, to 1023 1 create the Ozone Transport Rule, also called the 2 NOx SIP, State Implementation Plan; are you 3 familiar with that? 4 MR. WOJCZYNSKI: We at Manitoba Hydro 5 are familiar with that and I have some familiarity 6 with it. 7 MR. WILLIAMS: I won't go into it in 8 great detail with you, but you will agree with me 9 that the efforts -- to lay the ground work for 10 this regulatory initiative took place way back in 11 1995; would that be fair? 12 MR. WOJCZYNSKI: There were specific 13 federal efforts in the U.S. which are part -- 14 which have led to where we are now. 15 MR. WILLIAMS: Right. And they led to 16 where we are now, but they were subject to 17 repeated or sustained legal challenges for a 18 number of years in the mid and late 1990s; is that 19 correct? 20 MR. WOJCZYNSKI: What there has been, 21 there was a momentum to have more stringent and 22 environmental standards; air quality standards is 23 the handy label. 24 Actually, under the Bush 25 Administration, effectively, there has been some 1024 1 rollback of those and there has been some 2 criticism of the current U.S. administration for 3 that. But, there has also been a commitment by 4 the same administration to institute some new 5 regulation on what we would call the 3P, which is 6 mercury, NOx and SOx. 7 So, even though there has been a 8 rollback, it is expected -- even if the current 9 administration stayed in forever, which wouldn't 10 happen -- that there would be a further increase 11 in standards into the future. 12 MR. WILLIAMS: And I am hesitant to 13 belabour this point any more, especially given 14 that there is a number of former politicians in 15 the room, but just when we look at regulatory and 16 political uncertainty, and specifically political 17 uncertainty, we face a number of issues. The 18 first of it is we don't know who will be in power 19 a year from now, much less four or five years from 20 now. That is one uncertainty, correct? 21 MR. WOJCZYNSKI: We are talking U.S. 22 federal -- 23 MR. WILLIAMS: Yes. 24 MR. WOJCZYNSKI: -- and the answer is 25 yes. 1025 1 MR. WILLIAMS: Again, we don't know -- 2 assuming that they have certain promises in terms 3 of increased or the status quo in terms of 4 environmental regulation, we don't actually know 5 if they will do what they say; is that fair? 6 MR. WOJCZYNSKI: There is an inherent 7 uncertainty, yes. 8 MR. WILLIAMS: And even if they do 9 what they say, we don't know when they will do it; 10 would that be correct? 11 MR. WOJCZYNSKI: Could be earlier, 12 could be later. 13 MR. WILLIAMS: Again, we don't only 14 know when they will do it, we also don't know how 15 the public or the market will react and I point 16 you back to the Ontario example; is that fair? 17 MR. WOJCZYNSKI: There are 18 uncertainties there too, yes. 19 MR. WILLIAMS: It is Hydro's view that 20 there is as much uncertainty as to how much future 21 export prices will increase due to environmental 22 considerations and it is not possible to 23 definitely forecast the most likely environmental 24 scenario; is that right? 25 MR. WOJCZYNSKI: Yes. 1026 1 MR. WILLIAMS: Okay, thank you. 2 MR. WOJCZYNSKI: It is not possible to 3 definitely forecast "the" expected price with 4 precision and that was clearly the intent of that 5 passage in our submission. 6 It goes on to talk about, though -- 7 you can't say this is what is going to happen at 8 exactly this price. What we go on to say in the 9 remainder of the submission, which I am sure you 10 are familiar with, Mr. Williams, is that there is 11 a range of possibilities and what you can do is 12 bracket the possible futures and come up with a 13 likely range, recognizing you will be somewhere 14 within that range. But, you can't say precisely 15 for sure where you will end up within it, but you 16 can with confidence come up with a range. 17 Anybody that is doing an investment on 18 anything -- even when they are deciding what they 19 will do with their apartment block or house, has 20 to recognize a range of possibilities and not be 21 frozen by the fact there is uncertainty. 22 So, anybody who will be doing a major 23 investment does an extensive investigation of what 24 the possible ranges are, take that into account, 25 recognizing the uncertainty, come up with their 1027 1 best over all estimate, make their investment 2 decisions on that, accounting for the fact that 3 there is a risk that it may even be outside that 4 range. That's what we have done. 5 If you can't do that, then society and 6 individuals and companies are frozen from doing 7 anything because there is uncertainties whether we 8 are going to live tomorrow. 9 MR. WILLIAMS: Nobody is arguing that 10 you should be frozen, Mr. Wojczynski. We are just 11 saying recognize the level of risk, agreed? 12 MR. WOJCZYNSKI: Yes. 13 MR. WILLIAMS: I wonder if I can turn 14 your attention to the Hydro's rebuttal evidence 15 or -- excuse me, the Hydro NCN rebuttal evidence, 16 specifically page 13 of 34. I have a bit of a 17 short snapper on that one. 18 MR. WOJCZYNSKI: I believe you said 19 page 13 of the NCN/Manitoba Hydro rebuttal? 20 MR. WILLIAMS: You might be right on 21 that, but what I meant to say is page 14 of 34. 22 Specifically, I will refer you under 23 the heading "exports" to line 6: Project 24 transmission losses. I will read in this excerpt 25 your evidence and get you to confirm it. 1028 1 "As indicated in the response to MH 2 112, ECS expressed concern that 3 Manitoba Hydro has utilized 4 transmission losses of 10 percent 5 instead of 14 percent. That's 6 overstating the IRR and financial 7 benefits of the project. In fact, the 8 Hydro/NCN submission utilized losses 9 of 14 percent in determining export 10 prices and consequently in the 11 evaluations that have been provided in 12 the submission. The difference 13 between 10 percent and 14 percent 14 reflects additional transmission 15 losses generated in the MAPP market by 16 Manitoba Hydro export energy 17 transactions." 18 Hopefully, I paraphrased that correctly, 19 Mr. Wojczynski? 20 MR. WOJCZYNSKI: Yes, you did. When I 21 re-read it, and listening to you in the cold light 22 two weeks after we wrote the rebuttal -- or a week 23 and a half, we may be should have used in line 11 24 the word "revenues" instead of prices, but, 25 nevertheless, this is what we wrote. 1029 1 MR. WILLIAMS: Yes. Excuse me, in 2 terms of the submission, utilized losses of 14 3 percent in determining export revenues; is that 4 what you're saying? 5 MR. WOJCZYNSKI: That might have been 6 a more descriptive term than prices, but the 7 fundamental point is still there. 8 MR. WILLIAMS: And perhaps you can 9 help me with this, Mr. Wojczynski, because we 10 searched elsewhere in the evidence where you -- 11 where this 14 percent figure in terms of revenue 12 prices was used. Can you refer me to anywhere 13 else? 14 MR. WOJCZYNSKI: Maybe before I try 15 and refer you, I could just explain the concept 16 here and then we can see where the references are 17 and how much this has been discussed or not been 18 discussed. 19 First of all, we start with this 20 exciting point of where we reference energy and 21 prices in our system. If you start with the 22 generation in the north -- it is Wuskwatim we are 23 talking about, let's talk about Wuskwatim. The 24 losses from getting from Wuskwatim down to the 25 border, U.S./Canadian border is in the order of 10 1030 1 percent, give or take a bit. So, we use that 2 generically for everything and you have seen it 3 repeatedly throughout the submission analysis. 4 When we develop a price -- excuse me. 5 MR. MAYER: Is this the short snapper 6 you were telling us about? 7 MR. WOJCZYNSKI: This is a detail, I 8 agree, but we can get rid of it fairly quickly I 9 think. 10 The losses from Wuskwatim to the 11 border are 10 percent. We make sales at the 12 border. The prices we have quoted and the prices 13 we have shown in all the figures are all at the 14 border. 15 There is one additional feature that 16 we have to look after and that is when we export 17 at the border and someone buys it from us, they 18 take care of the transmission tariff on the other 19 side of the border and we have talked about that 20 previously. 21 But, what we have to, at Manitoba 22 Hydro, take into account is that our export going 23 into the pool causes additional losses on the 24 other side of border and we have to repay those 25 losses. Those losses are in the average of around 1031 1 4 percent for our exports. So, in all our 2 calculations what we do -- and that's why I said 3 we probably used the word "revenue" instead of 4 "price" on line 11 here -- the prices we quote are 5 always at the border. 6 But, then when we do the evaluation 7 with Wuskwatim and the exports, we take 4 percent 8 of the energy that has to be exported and we have 9 to provide that to the MAPP pool free, so to 10 speak, to offset the increased losses our export 11 causes. That is true whether we export Wuskwatim, 12 wind or DSM; it doesn't matter. So, that's what 13 we are dealing with here. 14 It is not a topic we dealt with 15 elsewhere because it was in such detail that we 16 just didn't want to burden the whole presentation 17 with that. But the -- but some snappy, quick, 18 bright analysts over at Econalysis has picked up 19 the 14 percent in various calculations and 20 naturally said: Where did this come from? You 21 have never talked about it before? We haven't 22 talked about it before. It was a detail we never 23 got into. 24 So, it is understandable that it 25 raised a question in the minds of whoever it was 1032 1 that was looking at it. But, actually, it has 2 been included in all our valuations inherently, 3 but not in the price, but in the energy that we 4 have to supply for an export. 5 MR. WILLIAMS: Thank you for that, 6 Mr. Wojczynski. Also, when we qualify our expert 7 witnesses probably some time next week, perhaps I 8 will get to you do the introduction for them, 9 given your compliment. 10 MR. WOJCZYNSKI: A small qualifier to 11 what I said -- I am sorry, when we are talking 12 about getting into details -- just to show how 13 detailed this stuff can get, when we export into 14 the States, we have to pay the losses. But, when 15 we export to Saskatchewan or Ontario or Alberta, 16 we don't have to. So, we just assumed that we 17 export to the States and just assumed 4 percent. 18 It is the kind of details we get into that we just 19 didn't document. 20 MR. WILLIAMS: Thank you for that 21 answer and it was appreciated. 22 I am going be turning to the subject 23 of hurdle rates in a bit greater detail in a 24 couple seconds. I just want to get a sense of the 25 Manitoba Hydro planning process. I am trying not 1033 1 to trench on any territory that Mr. Abra covered, 2 but from time to time, I will do so. 3 I want to start with the end point. 4 As I understand it, the end product of Manitoba 5 Hydro's planning process is the integrated 6 financial forecast or IFF and the last one was 7 produced in November 2003; is that correct? 8 MS. WRAY: Yes. 9 MR. WILLIAMS: Ms. Wray, you just have 10 been waiting for me, haven't you? 11 As I understand it, the planning 12 process -- 13 MR. ADAMS: Can I interrupt a minute? 14 I respectfully disagree with Ms. Wray. 15 The end point of the planning process 16 is delivering energy to customers at a price that 17 is respectable and affordable and all the other 18 things that go with it, including all the other 19 aspects of our strategic objectives and goals and 20 principles. The IFF is a very, very important 21 annual part of that process, but it is not the end 22 point. 23 MR. WILLIAMS: Okay, thank you. Could 24 I start with it being the "second" end point -- 25 no, I am just teasing. 1034 1 As I understand it, the planning 2 process involves the following activities: One is 3 a development of economic forecast which provides 4 an outlook for the Manitoba and Canadian economies 5 as well as the U.S. economy; is that right? 6 MS. WRAY: Yes. 7 MR. WILLIAMS: The next step is 8 development of a load forecast based on the 9 economic outlook and this indicates what the 10 future domestic electricity requirements are 11 expected to be; is that correct? 12 MS. WRAY: Yes, with the addition that 13 the load forecast does consider other information, 14 as Mr. Wojczynski explained. 15 MR. WILLIAMS: Yes, thank you for 16 that. 17 Number 3 is the development of a power 18 resource plan which indicates how Hydro plans to 19 meet the future electricity needs identified in 20 the load forecast. Is that right? 21 MS. WRAY: Yes. 22 MR. WILLIAMS: Using the established 23 reliability criteria, this plan also indicates new 24 generation resources are required during the 25 outlook period and determines what those resources 1035 1 will be; is that correct? 2 MS. WRAY: Yes. 3 MR. WILLIAMS: Using the PRP, or power 4 resource plan, a capital expenditure forecast is 5 then produced based on the facilities identified 6 in the plan, and ongoing capital programs and 7 requirements. Is that correct? 8 MS. WRAY: Yes. As you have said, the 9 capital forecast involves more than just power 10 resource additions. 11 MR. WILLIAMS: Okay. The next to last 12 step is the IFF, which pulls this all together, 13 the cost of the capital program, the cost of 14 operating the system annually to meet the load 15 forecast, and the revenue based current plan rates 16 and loads. Is that right? 17 MS. WRAY: Yes. There are some other 18 steps as well, the development of export 19 forecasts, both short and long term. And also 20 even before the economic outlook, there is a 21 corporate strategic plan which is reviewed every 22 year. 23 MR. WILLIAMS: Thank you, Ms. Wray. 24 As I look at that series of steps, and taking into 25 account your comments, the power resource plan is 1036 1 certainly a critical element of that process 2 leading up to the IFF. Is that correct? 3 MS. WRAY: It is certainly one of the 4 critical elements. 5 MR. WILLIAMS: And the decision as to 6 which form of generation will be utilized has 7 important impacts both upon the system's 8 operations and its cost; correct? 9 MS. WRAY: Yes. Where there are 10 resource additions, I mean, there are some IFF's, 11 where that is not a particularly major component 12 of the capital forecast, but other years it is. 13 MR. WILLIAMS: So, in developing the 14 power resource plan, the corporation wishes to -- 15 has to have a fair degree of confidence that the 16 elements that it is incorporating into that plan 17 are the appropriate elements and prudent choices; 18 is that right? 19 MS. WRAY: Yes, bearing in mind, 20 though, that the resources which are identified in 21 the power resource plan are not necessarily 22 committed and may change from year to year in 23 terms of the order of sequence or the particular 24 dates. 25 MR. WILLIAMS: But, it certainly gives 1037 1 an indication of the corporation's current 2 priorities; does it not? 3 MS. WRAY: It gives an indication of 4 the corporation's latest forecasts of what kind of 5 resources it needs and when. 6 MR. WILLIAMS: I wonder if I can turn 7 to -- going back to tab 7 of the CAC/MSOS book of 8 references, which is the interrogatory response 9 CAC/MSOS first round 3a. I don't know who I am 10 directing my question to, but I suspect it might 11 be Mr. Adams. 12 Mr. Adams, earlier we did speak about 13 Hydro's policy in terms of project evaluation. 14 You will recall that we briefly touched on the 15 subject of the hurdle rates. I just want to go 16 back there for a few minutes. Is that fine with 17 you? 18 MR. ADAMS: Do I have any choice? 19 MR. WILLIAMS: You are the proponent, 20 I guess the onus is on you. You don't have to -- 21 As I understand it, generally the 22 starting point for the development of a hurdle 23 rate is a weighted average cost of capital or 24 WACC, which is the company's overall cost of 25 financing; is that right? 1038 1 MR. ADAMS: Yes, it is. 2 MR. WILLIAMS: Depending on the type 3 of project to be evaluated, a further risk premium 4 can be added beyond that which is incorporated in 5 WACC to recognize additional uncertainty in future 6 cash flows; is that right? 7 MR. ADAMS: Yes. 8 MR. WILLIAMS: When the corporation 9 employs -- and let me back up a second just so I 10 am clear. The corporation's current weighted 11 average cost of capital is 5.98 or is it 6.08? 12 MR. ADAMS: I understand it is 5.92 -- 13 82 -- I don't know. It is around 6 percent. 14 MR. WILLIAMS: What is a percentage 15 point between friends, right? 16 MR. MAYER: Depends whether you are 17 using billions or millions. 18 MR. WILLIAMS: So, this weighted 19 average cost of capital, around 6 percent, is used 20 to assess investments in Hydro's core business 21 mix, i.e. generation, transmission, distribution 22 for domestic markets, along with the type of 23 export business in which the corporation is 24 historically engaged; is that right? 25 MR. ADAMS: Yes. 1039 1 MR. WILLIAMS: If the project falls 2 outside these core activities or has an unusual 3 degree of risk, then the hurdle rate will be 4 greater than this 6 percent? 5 MR. ADAMS: Yes. 6 MR. WILLIAMS: And the response sets 7 out the company's policy in terms of the policy 8 for applying the hurdle rate and I just want to go 9 through it again, with apologies to Mr. Abra. 10 My understanding is that as a general 11 guideline the company provides benchmark hurdle 12 rates classified as low, medium and high risk; is 13 that right? 14 MR. ADAMS: Yes. 15 MR. WILLIAMS: They are demarcated by 16 the 5.98 percent, the 10 percent and 15 percent 17 respectively for low, medium, and high risk; is 18 that right? 19 MR. ADAMS: Yes. 20 MR. WILLIAMS: Yes, sir? 21 MR. ADAMS: Yes. 22 MR. WILLIAMS: But, in practice, each 23 cash flow component will have varying levels of 24 risk, so the classification of certain projects 25 may not precisely equal one of the benchmark 1040 1 equivalents, it might be within a range; is that 2 right? 3 MR. ADAMS: Yes. 4 MR. WILLIAMS: A project that would be 5 classified -- we have dealt with low risk. A 6 project that would be classified low to medium 7 risk is defined as one which belongs to Hydro's 8 core business mix, but which presents additional 9 challenges and uncertainties; is that right? 10 MR. ADAMS: Yes. 11 MR. WILLIAMS: An example of that 12 might be a power resource project such as new 13 generation, with typical challenges and 14 uncertainties, correct? 15 MR. ADAMS: Yes. 16 MR. WILLIAMS: In terms of the medium 17 to high risk, which is greater than 10, less than 18 15 or up to the 15 percent range, that's defined 19 as one which does not belong to Hydro's core 20 business mix or which presents significant 21 additional challenges and uncertainties; is that 22 right? 23 MR. ADAMS: Yes. 24 MR. WILLIAMS: I guess an example of 25 that would be Brandon combustion turbine that we 1041 1 spoke of so long ago -- this morning -- which was 2 classified as a medium risk project; is that 3 right? 4 MR. ADAMS: We considered the Brandon 5 one to be medium. 6 MR. WILLIAMS: Excuse me, so it was. 7 Rather than being medium to high, it was 8 considered medium, okay. Thank you. Its hurdle 9 rate was set at 10 percent? 10 MR. ADAMS: Yes. 11 MR. WILLIAMS: That's primarily 12 because of Hydro's concerns in terms of export 13 market forecast; is that right? 14 MR. ADAMS: No. We had never built a 15 combustion turbine before. It had to be 16 integrated into an operating system. There was 17 concern about gas prices, there was concern about 18 export prices and all the other attributes of that 19 particular project. 20 How do I explain this one a little 21 more? One of the -- the main benefit that we 22 saw -- or one of the main benefits that we saw in 23 the export market for the combustion turbine was 24 the ability to move off peak power to on peak 25 power. Because of the spread between the on peak 1042 1 and off peak, you get what we call convergence 2 between the off peak, and the long-term firm 3 prices then, the benefit of the combustion turbine 4 disappeared. Conversely, if that happens in 5 Wuskwatim, it probably improves the economics of 6 it. 7 MR. WILLIAMS: So, one of the factors 8 in the determination that it was a medium risk 9 project was the export market, but that factor 10 related to the convergence between opportunity 11 costs and firm -- opportunity prices and firm 12 prices, which heightened the risk for combustion 13 turbines? 14 MR. ADAMS: That was one of the 15 factors. 16 MR. WILLIAMS: Okay. Now, what I 17 would like to do now -- and I think this goes to 18 Mr. Wojczynski -- 19 MR. WOJCZYNSKI: Wojczynski. 20 MR. WILLIAMS: Referring your 21 attention to a table which we provided to Hydro 22 late last week entitled: "Manitoba Hydro 23 calculations of wind power economics." Unless 24 there is any objection from Mr. Bedford or Ms. 25 Matthews Lemieux, I ask we share that with the 1043 1 Commission as well, Mr. Grewar. 2 Mr. Wojczynski -- just teasing. What 3 I am going to do -- what I propose to do is 4 describe the table for the benefit of the panel 5 and the audience. I understood you had a couple 6 of minor editorial corrections that you may wish 7 to go over with me. 8 Essentially, what we have here is five 9 columns and going across the top, the first column 10 speaks of parameters such as capacity factor, 11 annual energy, et cetera. The second, third, 12 fourth and fifth column are extracts, either from 13 the record or technical conference in which 14 Manitoba Hydro/NCN have performed various 15 calculations of wind power economics; is that 16 right? 17 MR. WOJCZYNSKI: Yes. 18 MR. WILLIAMS: For example, in the 19 first column we have the scenario from the 20 April 2003 submission, which is found at pages 15 21 to 16 of chapter 6; is that right? 22 MR. WOJCZYNSKI: Yes. 23 MR. WILLIAMS: In the last column we 24 have the calculation of wind power economics, 25 which was derived from the Manitoba Hydro/NCN 1044 1 rebuttal evidence which was filed fairly recently; 2 is that correct? 3 MR. WOJCZYNSKI: Yes, with my 4 editorial comments to come. 5 MR. WILLIAMS: Yes, and that was a 6 helpful segue. If we could -- my understanding is 7 that in terms of -- that you have had an 8 opportunity to verify the calculations on this 9 table -- not the calculation, but the replication 10 of the numbers on this table and you take issue 11 with, under annual energy at generation in the 12 extreme right-hand column, the figure of 1,520 GWh 13 and that you would replace is 1,380 GWh; is that 14 right? 15 MR. WOJCZYNSKI: Yes. 16 MR. WILLIAMS: Could you provide an 17 explanation of why? 18 MR. WOJCZYNSKI: Yes. First of all, 19 if you take 450 megawatts of wind generation at 35 20 percent capacity factor and you did the 21 calculation, you would get something like 1,380 22 GWh, roughly speaking. 23 Secondly, I expect the reason you have 24 got 1,520 GWh is that what we said was that 25 Wuskwatim and wind, we wanted to have an apples 1045 1 and apples comparison in terms of the amount. 2 So, 1,520 GWh is the average energy 3 out of Wuskwatim. But, as I had referenced 4 earlier, Wuskwatim has the losses from the north 5 to the south. So, we only used 450 megawatts of 6 wind, which would give 1,380 GWh, which is equal 7 to the amount of energy to be left over once 8 Wuskwatim had gone through the transmission and it 9 was down south and the losses were taken out. 10 So, the difference between those two 11 numbers is just the losses from Wuskwatim down 12 south -- otherwise, it would be unfairly biased in 13 favour of Wuskwatim. 14 MR. WILLIAMS: So, the reduction 15 reflects transmission losses? 16 MR. WOJCZYNSKI: Yes, from the north 17 to the south, 10 percent say. 18 MR. WILLIAMS: So, you're assuming the 19 wind power will be located in the south so you 20 don't have to incorporate transmission losses in 21 your calculation? 22 MR. WOJCZYNSKI: Yes, I should have 23 explained that. You are right. Our best 24 information is that the best wind resource is in 25 the extreme south of the Province located rather 1046 1 closely together in a subregion. 2 MR. WILLIAMS: I understand you also 3 have a correction in terms of the third parameter, 4 being capital cost in 2009, including 5 transmission, and that you can't quite come up 6 with the figure of $1,446 per kilowatt; is that 7 right? 8 MR. WOJCZYNSKI: Yes. We tried to 9 replicate that number, but we couldn't quite get 10 it. I could just explain a little bit of what we 11 think might be a more reasonable number and get 12 close to what the -- in the end, we can get a 13 number which is fairly close, so I should just 14 explain slightly. 15 The other numbers in the first three 16 columns, the 1,610 per kilowatt, that was for 17 250 megawatts of wind and it included a little bit 18 of transmission just to hook from the wind 19 generator to the local transmission network and we 20 had a little bit of 230 kV transmission and some 21 substation work. That was included in that. 22 Now that we are looking at 23 450 megawatts of wind here and remember, this is 24 in addition to 250, the idea being that we are 25 already committed to doing the 250, if you want to 1047 1 now compare Wuskwatim against wind, you are now 2 having to look at additional to what we are 3 already planning to do. 4 So, you are talking about 450, which 5 would bring it to 700 megawatts of wind. In that 6 case now, we have to add in a transmission beyond 7 just a little bit of stub line to the local 8 network. You have to reinforce the whole region. 9 So, that's a major change. So, the capital costs 10 are lower for the generation portion in the other 11 three columns, but we now add in the transmission 12 number and that actually brings it to $14.43 per 13 kilowatt. That's just a quick calculation I did 14 to try and match. So, that is pretty close to 15 your number. So, that's the explanation. 16 There was -- I think it was 17 Mr. Abra -- or maybe it was the Chair the other 18 day on Wednesday. I think it was the Chair of the 19 CEC. You asked us to provide some information 20 that CAC had asked for, Mr. Chair. So, we have 21 done that. 22 Actually, I emailed it to all the 23 participants this morning after verifying over the 24 weekend with CAC that that was the kind of 25 information that was being sought. So that has 1048 1 been submitted to everybody by email this morning. 2 We have copies if there is any need. It actually 3 explains some of this break down as well. I don't 4 know if there is any need to go through that now, 5 but it is available and we would like to have it 6 included as part of the record, if that is 7 appropriate? 8 MR. GREWAR: That is not a problem, 9 Mr. Chairman. We don't actually have the document 10 physically yet. If it was emailed to us this 11 morning, we were not in the office. Maybe I will 12 take that from you and see that the Commissioners 13 receive a copy. 14 MR. WOJCZYNSKI: I am not sure if 15 Mr. Williams needs it, but it is part of the 16 explanation of how we got the numbers. It is 17 available, it has been emailed, we have hard 18 copies if it is needed today. I can give it to 19 Mr. Grewar at the end. 20 MR. WILLIAMS: Mr. Chairman, I hate to 21 do this, but I wonder if I could trouble you for 22 about a three minute adjournment? 23 THE CHAIRMAN: I don't think anybody 24 would greatly object to having the opportunity to 25 stand up for a few minutes and move their legs. 1049 1 MR. WILLIAMS: Thank you. 2 3 (BRIEF RECESS) 4 5 THE CHAIRMAN: All right. 6 MR. WOJCZYNSKI: If I can just clear 7 up something I said just before the break. It was 8 fortuitous that Mr. Williams asked for a break 9 because then it was pointed out to me that I had 10 read some wrong numbers and I apologize. 11 When I was talking about the capital 12 cost in the third column for the wind, if you 13 include the transmission, and you have to include 14 both the station and the line -- forgetting all 15 the details -- for a 2009 in-service date for 16 450 megawatts of wind, it should be $1,563 per 17 kilowatt. If you go to the 2010 in-service date 18 one year later, we assume it will be around 19 3 percent. So, around $1,523 a kilowatt. 20 MR. WILLIAMS: Mr. Wojczynski -- I 21 apologize for that. Could you repeat those 22 numbers? 23 MR. WOJCZYNSKI: Sure. Okay. We are 24 now looking at the last column and it says 25 Manitoba Hydro/NCN rebuttal attachment. We are 1050 1 looking at 450-megawatt wind farm and that is 2 additional to the 250 we have already got planned. 3 We are looking at the capital cost, 4 which currently says on there 1446 dollars per 5 kilowatt. I think I roughly know where you got 6 that from -- never mind all the details. 7 The new number which includes the 8 major transmission addition that we talked about 9 earlier is for a 2009 in-service date, 1,563. 10 Roughly, a 2 and a half or 3 percent decrease in 11 price, you go to 2010. So, say 1,523, in that 12 order. I just did it quickly here myself. 13 So, we assume that there will be real 14 cost decreases in the wind turbine costs over 15 time. So, that is why it depends on the 16 in-service date. 17 The item that I mentioned from this 18 morning that was emailed and some copies were 19 provided -- I have another couple here -- they 20 detail some changes and the impacts on IRR. 21 I am not sure if we need to go through 22 that or if that was something you want to pursue, 23 but that information is available and it is 24 similar to what I talked about on Wednesday, 25 except it is in a tabular, written form and is 1051 1 slightly refined now. 2 MR. GREWAR: If, Mr. Chairman, we 3 could enter those tables now so there is some 4 consistency. Exhibit number MH/NCN 1003: Wind 5 economics explanations of steps 2.61 percent IRR, 6 March 7, 6:00 p.m. with attachments, wind tables, 7 various and large scale wind generation in 8 Southern Manitoba, tables various. 9 THE CHAIRMAN: Thank you. Now, you 10 may carry on. 11 MR. WILLIAMS: Thank you, Mr. Chairman 12 and members of the panel. 13 Mr. Wojczynski, just for a starting 14 point, I guess what I am interested in, kind of 15 the document which was found on the April 1st -- 16 the numbers from your April 1st submission which 17 was in the first column beside the parameters, 18 which is the 15 megawatt farm which I will 19 characterize as little wind -- 20 MR. WOJCZYNSKI: It is only 21 $75 million or so. 22 MR. WILLIAMS: -- versus the scenario 23 in your rebuttal evidence, the 450-megawatt farm, 24 which I will characterize as big wind. 25 Just when I look down these 1052 1 parameters, we see differences in the capacity 2 factor, one being 25 to 35 percent, one being 25 3 to 40 percent. 4 We see differences in capital cost and 5 you have explained some of them just now. We see 6 differences in capital cost reduction, 2002 to 7 2009, little wind being 5 percent a year and big 8 wind being 2.5 percent a year. 9 We see differences in terms of the 10 government WPPI subsidy as well. Would you agree 11 with that? 12 MR. WOJCZYNSKI: Yes, and it may seem 13 confusing, but I could provide an explanation for 14 those, but, yes. 15 MR. WILLIAMS: And maybe, I am sure 16 you will get an opportunity to provide the 17 explanation, but I will try and perhaps to aid in 18 that explanation. I will just make sure that I 19 understand the parameters that go into the big 20 wind, 450 megawatt farm. 21 Now, you have already given us the 22 assumed capital costs being $1,563 for 2009 and 23 2010 being 1,523, correct? 24 MR. WOJCZYNSKI: Yes. 25 MR. WILLIAMS: Am I right 1053 1 in assuming -- that the assumed capacity factor is 2 assumed to be 35 percent for big wind? 3 MR. WOJCZYNSKI: Yes. 4 MR. WILLIAMS: And the annual O&M is 5 3 cents per kilowatt hour, that's right? 6 MR. WOJCZYNSKI: No. I know that is 7 down your column. We hadn't finished doing the 8 editorial comments. 9 MR. WILLIAMS: Please proceed. 10 MR. WOJCZYNSKI: We are still assuming 11 something in the order of 1 and a half cents per 12 kilowatt hour for O&M. I believe where you got 13 the 3 and a half cents from -- and this is just my 14 belief or interpretation of what your consultants 15 did. I am guessing that what you did is you took 16 1 and a half cents that we said was O&M from the 17 earlier information and we explained that the 18 opportunity cost for integration, the firming 19 component of firming and shaping, that was 1 and a 20 half cents instead of 0.9 cents a kilowatt hour. 21 So, I am guessing that what you did is 22 add the two together and called it O&M, but it is 23 not really O&M. The firming component of firming 24 and shaping it is a system operational cost. It 25 is not an O&M cost. O&M is still in the order of 1054 1 1 and a half cents. 2 MR. WILLIAMS: Okay. You have got the 3 O&M cost of 1 and a half cents and you would go 4 down to the firming and shaping costs and have 5 that also as 1 and a half cents; is that right? 6 MR. WOJCZYNSKI: The firming would be 7 1 and a half cents. The firming and shaping, we 8 tried to make -- when we did the technical 9 conference, we tried to make the issue of what you 10 have to do with wind in the system. We tried to 11 simplify it and make it understandable for people 12 by talking about the firming and shaping cost and 13 providing an estimate of what that number is. I 14 think it may have actually caused more confusion 15 than being helpful, even though I don't know how 16 else we could have explained it. 17 The firming cost is something we add 18 on to our system simulation that I talked about 19 previously. That's 1 and a half cents and that's 20 a cost that isn't part of a hydraulic system 21 operation. That is more to do with other costs 22 outside of what we would normally look at under 23 the simulations. So, the 1 and a half cents is 24 one component in firming and shaping. 25 The shaping cost is moving water 1055 1 around in our system and operating our generators 2 and that is inherent in our simulations. I don't 3 offhand know what that number would be right now 4 to put in this table for the 450 megawatts of 5 wind. It is not something we normally calculate. 6 The 1 and a half cents is something we have to 7 calculate because it is an adder. The shaping 8 component isn't in there and we just did an 9 estimate before of what that might be. So, I 10 don't know if that is helpful. 11 MR. WILLIAMS: Somewhat. Somewhat. 12 Just moving down that line, the 13 government WPPI subsidy, under the big wind 14 scenario it is not included. Under the little 15 wind scenario, on the left-hand side, it is 16 included; is that right? 17 MR. WOJCZYNSKI: Yes. The reason for 18 that is that when we are talking about the 19 250 megawatts of wind, the idea that is wind that 20 would be done over the next eight years or so -- 21 or six years, pardon me. Five to six years. It 22 would be in place by 2009. It would be the first 23 wind built in Manitoba. 24 The federal incentive program is 25 limited to 1,000 megawatts and they have actually 1056 1 said there is a maximum. They made a policy 2 decision to only allow any province to only have 3 300 megawatts maximum out of that program. That 4 program is over subscribed. 5 So, we made for wind, an optimistic 6 assumption that all 250 megawatts would get that 7 federal incentive or there would be some expansion 8 of that that would include the 250. 9 Once we had gone beyond 250 megawatts 10 of wind and we are going from 250 to 11 700 megawatts, the assumption is that it is very 12 unlikely, anything we are hearing from the federal 13 government, that the incentive program would be 14 extended sufficiently to provide an incentive for 15 so much wind in Manitoba. So, we have assumed 16 that the second traunch of wind, this 17 450 megawatts, would not have the incentive. 18 MR. WILLIAMS: Thank you for that. 19 Moving down the line, I think you have 20 covered firming and shaping cost -- as least to 21 the best of my ability to understand. 22 The export premium, it is included 23 under the little wind scenario. Is it included 24 under the big wind scenario? 25 MR. WOJCZYNSKI: Yes, we use the same 1057 1 kind of evaluations all across the board. 2 MR. WILLIAMS: So, the export price 3 forecast was the expected forecast as well then? 4 MR. WOJCZYNSKI: Yes. 5 MR. WILLIAMS: Okay. Now, as I 6 understand the big wind scenario, the base case 7 scenario was existing resources plus current DSM 8 programs, plus 250 wind, but no Wuskwatim; is that 9 right? 10 MR. WOJCZYNSKI: I am sorry, could you 11 repeat the question? 12 MR. WILLIAMS: Yes. Referring to the 13 450 megawatt farm, the base case scenario, i.e. 14 what system was it added to, was existing 15 resources, plus current DSM programs, plus 250 16 wind, but no Wuskwatim; is that correct? 17 MR. WOJCZYNSKI: That's correct. 18 Wuskwatim would have gone in 2020, not 2009. 19 MR. WILLIAMS: In terms of the little 20 wind -- 21 MR. WOJCZYNSKI: I stand corrected. 22 There is -- this one we did what is called a 23 long-term economic, so you were actually right, 24 Mr. Williams, and I was wrong. One for you. 25 MR. WILLIAMS: Not just one. 1058 1 MR. WOJCZYNSKI: There was no 2 Wuskwatim 2020 in this case. We did -- this was 3 comparing to long-term economics where there was 4 no Wuskwatim ever. 5 MR. WILLIAMS: So, this is compared to 6 a base case with SCCT's all the way through? 7 MR. WOJCZYNSKI: Starting in 2020, 8 yes. 9 MR. WILLIAMS: Just by contrast, if I 10 go over to the little wind scenario, could you 11 tell me what the base case scenario for that is? 12 MR. WOJCZYNSKI: In that case -- I 13 have to double-check. 14 Wuskwatim was in 2009 in that case. 15 So, by not having Wuskwatim in, the advance 16 Wuskwatim, by taking it out, it actually ever so 17 slightly improves of the economics of the 450 18 wind, everything else being equal, but it is a 19 very small impact. 20 MR. WILLIAMS: How small, 21 Mr. Wojczynski? 22 MR. WOJCZYNSKI: Less than 0.1 -- 0.1 23 being the IRR change. 24 MR. WILLIAMS: Just going back to big 25 wind, 450 megawatt farm, you used two in-service 1059 1 dates, I was a little confused by that. So, the 2 in-service date we are assuming for big wind is 3 what, Mr. Wojczynski? 4 MR. WOJCZYNSKI: Well, we did it in 5 two different sets of analysis. The 6.1 percent 6 IRR analysis, we used a wind 2009 because we were 7 trying to make a consistent comparison with the 8 submission. We also did another analysis which 9 was the social net benefit analysis or benefit 10 cost analysis. In that one we used a 2010 11 in-service date. So, that is why I gave both. 12 The 6.1 IRR was 2002 submission 13 assumptions, so it was based on 2009. 14 MR. WILLIAMS: Little wind, what was 15 the -- being the original, the 250-megawatt total 16 in the original submission, what was the 17 in-service date assumed for that? 18 MR. WOJCZYNSKI: 2009. 19 MR. WILLIAMS: Okay. Mr. Chairman, 20 just one second, please. 21 Mr. Wojczynski, just for 22 clarification, in terms of little wind, the first 23 column, what was the firming and shaping costs 24 associated with that? 25 MR. WOJCZYNSKI: The estimate of 1060 1 firming and shaping cost was around 2 cents. Like 2 all these columns would have been 2 cents; the 3 first three columns. 4 THE CHAIRMAN: I thought I heard you 5 say a while ago 1.5? 6 MR. WOJCZYNSKI: That was for the 7 fourth column, Mr. Chairman. You could simply 8 take the 2 cents -- if you take that role -- let's 9 try to keep things simple today and we will just 10 do approximates and not worry about exactly the 11 right number. 12 Just to help today, why don't we say 13 for firming and shaping costs, the first three 14 columns all say 2 cents. Then we would say 3.6 15 cents for the fourth column, recognizing it is not 16 an exact number, but just to give an indication. 17 What we have done is increase the 18 integration cost from 0.9 to 1.5. That's why it 19 increased. The reason we increased it is for a 20 couple reasons, but the biggest reason is 21 450 megawatts of wind farms on top of the 250, so 22 the first 250 megawatts of wind you put in will be 23 the lowest cost to integrate in our system because 24 it will use existing capability. Over time and as 25 more and more wind generation is going, not just 1061 1 to Manitoba but elsewhere, the cost of those 2 resources that we use for the firming are going to 3 become more expensive and so that is why we went 4 from 0.9 to 1.5, giving now a 3.6 for that row. 5 MR. WILLIAMS: Mr. Wojczynski, thank 6 you for that. 7 As I understand it, when we are 8 looking at little wind on the left and the big 9 wind on the right, the difference in some of the 10 results there are differences in key assumptions 11 such as WPPI, the base scenario, and the firming 12 and shaping costs; would that be fair? 13 MR. WOJCZYNSKI: Yes. We don't want 14 to go into, I don't think, detail on that sheet 15 that we just got, Exhibit 1003. 16 The biggest parameters were -- the 17 capital cost reduction, it would have been 16 18 percent capital cost reduction, instead of the 5 19 percent we talked about earlier, plus another 20 0.6 -- another 3 percent because we are doing 21 450 megawatts instead of 200 or 250. 22 Then the transmission requirements, 23 though, are larger, so that would cause the IRR to 24 go up by 1.2. And integration costs are higher 25 and it would cause the IRR to drop by 1.4, and 1062 1 then took out the WPPI which caused a 0.8 drop. 2 MR. WILLIAMS: Mr. Wojczynski, you can 3 understand how some of this would be confusing, 4 not only to lowly lawyers, but to MBAs and 5 engineers as well; can you understand that? 6 MR. WOJCZYNSKI: Absolutely. 7 MR. WILLIAMS: I wonder if you would 8 be prepared to help my clients out in evaluating 9 this issue? And what they would ask you to 10 undertake is do a comparison of small wind versus 11 big wind under some common assumptions. I can 12 share those with you, Mr. Wojczynski. 13 MR. WOJCZYNSKI: We could take a stab 14 at doing something. We have to do approximations 15 so we can get it done it in the hearing time. I 16 assume you want it done as part of this hearing 17 process? 18 MR. WILLIAMS: That would be helpful. 19 MR. WOJCZYNSKI: It is just that 20 running simulations and all -- if we had to start 21 from scratch -- 22 MR. WILLIAMS: Mr. Wojczynski -- 23 MR. WOJCZYNSKI: We could do an 24 undertaking to do that. 25 MR. WILLIAMS: And I will provide you 1063 1 with some assumptions, and if you have concerns, 2 perhaps I could speak with your counsel and the 3 counsel for NCN offline, and we can clarify that. 4 What we would like you to do is 5 produce a table showing the IRR for small and big 6 wind, based on your best estimates as to the 7 capital costs, the firming and shaping costs, the 8 transmission costs, the O&M cost, and the CF cost 9 for each. 10 MR. WOJCZYNSKI: The capacity -- let 11 me just say, we use 35 percent for all of them. 12 There are ranges in there, but in the end, we just 13 use 35 percent as our best guess, so that is right 14 across the board. 15 MR. WILLIAMS: We would also like you 16 to use common assumptions regarding WPPI. 17 MR. WOJCZYNSKI: There is a problem 18 though. 19 MR. WILLIAMS: You have explained that 20 problem, fair enough. Common assumption in terms 21 of the in-service dates and also in terms of the 22 base case, i.e. no additional resources beyond the 23 current DSM program and SSE? 24 MR. WOJCZYNSKI: I think we can do 25 what you're asking for pretty quickly. What we 1064 1 can do is take those adjustment factors that are 2 outlined in Exhibit 1003 and apply the appropriate 3 ones. I think we can come up with something that 4 is close to, approximately what you're looking for 5 very quickly. 6 MR. WILLIAMS: Does that mean 7 overnight, Mr. Wojczynski? 8 MR. WOJCZYNSKI: We could attempt to 9 have that done overnight. I wouldn't want to make 10 that guarantee, there is uncertainty in anything 11 we do in our life. We will undertake to do that 12 overnight. My staff volunteered to do it 13 overnight. Two of them we found out were sick 14 this morning who aren't in the back row, but 15 others are volunteering to pick it up. 16 MR. WILLIAMS: That is very helpful -- 17 MR. WOJCZYNSKI: The common factors 18 you want, capital costs, O&M, WPPI, which we 19 talked about, firming and shaping, in-service 20 date -- we did use 2009 across the board for these 21 IRRs, so I think we are okay there -- but anyways, 22 there was an another one? Capacity factor we 23 talked about? 24 MR. WILLIAMS: This is going to be a 25 record to dream of, but I will -- capital cost, 1065 1 firming and shaping cost, transmission cost, O&M 2 cost and the capacity factor, as well as the 3 in-service date of 2009 and a base case with no 4 additional resources beyond current DSM program 5 and SSE. 6 MR. WOJCZYNSKI: And the base case has 7 no Wuskwatim, but it would have the SSC and the 8 DSM? 9 MR. WILLIAMS: That's right. 10 MR. WOJCZYNSKI: Where we think that 11 the estimates we are using may be different for 12 small and big, but they are supposed to be 13 somewhat different, then we will explain why that 14 is? 15 MR. WILLIAMS: That would be 16 excellent. 17 MR. WOJCZYNSKI: We have a couple 18 wrinkles on -- yeah, the transmission line cost 19 can't be common, for example, so we would explain 20 why they would have to be different. We will have 21 to do some approximations. 22 When we did the wind, we staggered the 23 wind. We had it come in over three years because 24 we thought that was more realistic. 25 But, if you are trying to do an apples 1066 1 and apples comparison of Wuskwatim, we just went 2 to 450 and made it the same in-service date. So, 3 we will just do some approximations, but we will 4 be relatively close. 5 MR. WILLIAMS: Thank you for that, and 6 please extend my thank you to the staff who have 7 graciously volunteered to work all night to assist 8 us. 9 MR. WOJCZYNSKI: They are rushing off 10 to do it as we speak. 11 12 (UNDERTAKING MH-25: Produce table showing IRR for 13 small and big wind) 14 15 MR. ABRA: When you are doing the 16 calculation, our consultants have also asked that 17 you do it based on levelized cost. Can you do 18 that as well? 19 MR. WOJCZYNSKI: We cannot do an IRR 20 based on that, but we can calculate a levelized 21 cost, but it doesn't have all the IRR information, 22 in it. Like, it doesn't have export revenues and 23 that kind of thing. Just having a levelized cost 24 for those two and then an IRR as two separate 25 calculations, they can do that after they are 1067 1 finished the IRR, yes. 2 MR. ABRA: Okay, thank you. 3 MR. WOJCZYNSKI: It will have to be an 4 approximation as well, given the time frames. 5 MR. ABRA: Thank you. 6 7 (UNDERTAKING MH-26: Provide levelized cost 8 calculation) 9 10 THE CHAIRMAN: Before we go on to 11 something else -- or are you continuing with this? 12 MR. WILLIAMS: Carry on, Mr. Chairman. 13 THE CHAIRMAN: I was just trying to 14 understand what is the difference for the 15 operating cost figures and the variance in regards 16 to what you call a major wind and a small wind, or 17 is that transmission cost associated in there? 18 MR. WOJCZYNSKI: The O&M cost was the 19 same. The transmission costs were different. 20 This table indicates that the operating cost has 21 gone up to 3 cents, but I explained that actually 22 wasn't accurate and that, I believe, what 23 Econalysis did there was add in the integration 24 cost into there. I am not sure how they did that. 25 We used the same O&M cost. 1068 1 MR. MAYER: Is this still an exhibit? 2 MR. GREWAR: I can't see it. 3 MR. WILLIAMS: I can't even remember 4 if I asked to have it introduced as an exhibit. 5 MR. GREWAR: We have not assigned it a 6 number yet. 7 MR. WILLIAMS: I am not intending to, 8 if that is giving you any comfort, Mr. Mayer. 9 MS. WRAY: Mr. Chair, I have the 10 answer to an undertaking that we put on the record 11 just before the break for Mr. Williams. 12 I think you asked about the annual 13 energy outlook for 2004, annual energy outlook 14 from the EIA, which is the Energy Information 15 Administration of the U.S. Department of Energy. 16 The reference -- and I apologize, it is a very 17 long website address, but it is: 18 WWW.EIA.DOE.GOV/OIAF/AEO/GAS.HTML. 19 What that shows is that for the year 20 2020, for example, there is what I take to be a 21 base case gas price of $4.28 U.S., which is very 22 close to the $4.26 that we had for our medium/high 23 gas price in filing. 24 THE CHAIRMAN: Can I ask Ms. Wray, so 25 people don't end up on the wrong site, that you 1069 1 repeat that, please? 2 MS. WRAY: Certainly. It is: 3 WWW.EIA.DOE.GOV/OIAF/AEO/GAS.HTML. 4 THE CHAIRMAN: Thank you. 5 MR. WILLIAMS: Mr. Chair, I have a 6 couple questions on the specific point that I 7 would like to continue with and then it would be a 8 convenient breaking point, especially with the 9 generous offer with the Hydro all-nighters. 10 Mr. Adams, I almost started with you 11 and I am going to finish with you today, I think. 12 If I recall your testimony from, I 13 think it was last Wednesday, you indicated that 14 the deal with Shell in terms of wind development 15 was still a fair ways off in terms of developing 16 actual projects; is that right? 17 MR. ADAMS: I can't remember exactly 18 what I said on Wednesday. 19 THE CHAIRMAN: What would you say 20 today? 21 MR. ADAMS: What I would say today is 22 that the probability with us coming to an 23 agreement with Shell is very, very low. 24 MR. MAYER: That's what I thought you 25 said the other day. 1070 1 MR. WILLIAMS: I was just trying to be 2 polite. I also understood you to say the deal 3 with Sequoia was not quite finalized; is that 4 right? 5 MR. ADAMS: I haven't checked the 6 office today, but subject to check, the deal with 7 Sequoia, as far as we are concerned, is all done 8 but the shouting. There were still a couple of 9 due diligence things that had to be checked out 10 and assuming that they check out, we have a deal. 11 MR. WILLIAMS: For purposes of 12 clarification, if you could turn to tab 12 in the 13 CAC/MSOS book of references? That is referring to 14 the consolidated integrated financial forecast, 15 IFF 03-1, page 8 at the top. Reference is made -- 16 do you have that, Mr. Adams? 17 MR. ADAMS: Yes. 18 MR. WILLIAMS: Reference is made in 19 that top paragraph to the new purchase of wind 20 power which was negotiated in 2003 and what new 21 purchase of wind power does this refer to? 22 MR. ADAMS: That is the Sequoia 23 arrangement. 24 MR. WILLIAMS: Okay. Thank you. 25 MR. ADAMS: We let the lawyers in and 1071 1 all of a sudden we had to have a contract. 2 MR. WILLIAMS: Mr. Chair, this would 3 be a very convenient spot to break. 4 MR. WOJCZYNSKI: Mr. Chair, could I do 5 a small correction, just to add to the confusion 6 on the wind? 7 I said I was going to try and simplify 8 it by just saying what the firming and shaping 9 costs were and then I inadvertently read the wrong 10 number. 11 The first three columns should all be 12 2 cents and then I went and said for the 450, I 13 said 3.6, but I meant to say 2.6. My apologies. 14 THE CHAIRMAN: I thought there was a 15 big variance there. 16 MR. WOJCZYNSKI: I said out loud what 17 I was doing in terms of the numbers, but then I 18 gave the wrong number, so 2.6. 19 THE CHAIRMAN: Thank you. It is 5 to 20 5:00. I think this is an appropriate time then to 21 adjourn. I shall ask before we do so, Mr. Grewar, 22 do we have any other exhibits to file? 23 MR. GREWAR: No, Mr. Chairman, from 24 what I understand, the item which was the Manitoba 25 Hydro calculation the wind power economics is not 1072 1 to be tendered as an exhibit. So, no, we have no 2 further exhibits, Mr. Chairman. 3 THE CHAIRMAN: Thank you. In that 4 case we shall reconvene at 9:00 o'clock tomorrow 5 morning. 6 (ADJOURNED AT 5:00 P.M.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25