Hunter Litigation Chambers

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1 C10-3 Hunter Litigation Chambers HUNTERIVOITH/BERARDINO/HARRIS October 4,2007 File no: Via Erica M. Hamilton Commission Secretary British Columbia Utilities Commission P.O. Box 250 6th Floor, 900 Howe Street Vancouver, BC V6Z 2N3 Dear Ms. Hamilton: Re: British Columbia Hydro and Power Authority - BCUC Order No. G Filing of Energy Supply Contract with Alcan Inc. as an Energy Supply Contract Pursuant to Section 71 - Further to Order ( , please find attached the Issues List which the District of Kitimat submits ought to be included in the scope of the within proceeding together with our brief submissions regarding the scope of the proceeding. We also enclose a copy of the Index to the Brief of Authorities of the Intervenor on the Scope of Proceedings issue. We will forward copies of these authorities under separate cover. We tmst you will find the enclosed in order. Yours truly, Hunter Litigation Chambers Per Mark S. Oulton MSOIvf Encls. cc Client BC Hydro and Power Authority Altention: Joanna Sofield Bull Housser & l'upper LLP Attention: David Bursey Registered Intervenors Huntcr Litigation Chambers Law Corporation Mark S. Oulton \Vest Gcorgin Street, Vancc,ii\-cr, BC V(,E HI direct: tcl: I ~x: e: mo~ilt~~n@llitigati~~n~ha~nh~'rs.~~~iii \vwi*-.litigationchiimhers.com

2 IN THE MATTER OF A CONTRACT FILING BY BSIITISH CO1,UMRIA IIYDRO AND POWER AUTHORITY OF A 2007 EI,ECTRICITY I'USICHASE AGREEMENT WITH ALCAN INC. PLKSUANI' TO SECTION 71 OF THE UTILITIES COMMISSIOh ACT - EUERGY SbPPLY CONTRACTS - PROJECT NO BRIEF OF AUTHORITIES OF THE INTERVENOR, DISTRICT OF KITIMA'T (Sco~e of Proceeding) Document Caselaw 1. B('7Y' - C'ert~ficute ofl'uhlic C'onvenience and.vece.s.siry Applicution,fir the Vuncouver 1.slund Trunsmi.s.sion Rein/Orcemen/ I'roject (July 7, 2006) 2. In the!\futter qfa f;iling by BC' Hydro and Power Authority qfenergy Supply Conrructs with Alcan Inc. - LTEPA Amending Agreement -Amended and Restuted Long-Term Electricity Purchuse Agreement (February 2, 2007) 3. In ihe,%fairer ofliun.schnada Keystone Pipeline GP I,ld - Reasons for 1)eci.sion k.1:.13. Decision No. OH (September, 2007) 4. h'ukinu (7i~lvnship) V. C'u~lidiun ~\~ufionui l<~rilil,uy ( ~ (J.[ F.C.J. 426 (C..A.) 5. T~suv~.i,i~:usen Residents ilguinst Higher Volluge Overhead Lines Society v. Briti.sh Columhiu (Gti1itie.s Commission) BCCA 537 Statutory Materials 6. Utilities Commission Acr, R.S.B.C c. 473, Part 5

3 Submissions of the Intervenor, District of Kitimat (Scope of Proceeding).. I. 1 he tiling of' an energy supply contract such as the 2007 EPA is governed by section 71 or the U/ilities (.'ommission Act. The relevant portions of this section provide: 71(1) Subject to subsection (I.!) [which is not relekant to thesc proceedings], a pcrson who.. cnters into an energy supply contract must (a) file a copy of the contract with the commission under rules and uithin thc time it specifies, and (b) provide to the commission any information it considers necessary to determine whether the contract is in the puhlic interest. (2) She commission may make an order under subsection (3) if the commission. after a hearing, finds that a contract to which subsection (1) applies is not in the public interest by reason of (a) the yuantlt) ofthc energy to be supplied under the contract, (b) the availability of supplies ofthc energy referred to in paragraph (a). (c) the price and availability of any other form oi'energy, including but not limited to petrolc~rm products, coal or biomass, that could be used instead of the cncrgy referred io in paragraph (a). (6) in the case only of an energy supply contract that is entered into by a public utility, the price of the energy referred to in paragraph (a), or (e) any other factor that the commission considers relevant to the puhlic interest. (3) IS subsection (2) applies. the commission may (a) by ordcr. declare the contract unenforceable, either wholly or to the extent the commission considers proper, and the contract is {lien unenlbrceahlc to thu exicnt spcciiied. or (br make any other order it considers advisable in the circumstances (emphasis added) Lti1iiie.s ('ornr?ri.s.sio Acr, R.S.U.C. 1996, c s. 71

4 --. Therefore. the L'undamental issue that the Commission is to determine on a s. 71 filing is nhether the contract. i.e. the <I'A, is in the public interest. 3. As set out above, the statute enumerates five criteria that the Commission is to have regard to in determining whether an energy supply contract such as the 2007 EPA is in the public interest. 'These are: (a) (b) (c) (d) je) the quantity ofthe energy to be supplied, the availability of the encrgq. the price and availability of alternative forms of energq, thc pricc of the energy. and any other factor that the commission considers relevant to the public intcrest. 0rilirie.s C'oinrr~is.sion Acl. R.S.B.C. 1996, c s. 71 (2) 4. The District of Kitimat submits that the language in the statute indicates that the statutory jurisdiction given to the Commission to determine whether an energy supply contract is in the public intercst is a broad one. Although: for example, price is a significant factor. the public interest is not and cannot be limited to whether the price is too high, because price is but one of the five enumerated factors under the statute. 5. Significantly, the statutory considerations include "any other factor that the commission considers relevant to the public interest.'' The District submits that such factors as thc original intended use ofthe power. the impact on the local community of a diversion from that use and the impact of'the contract on future contracts are all relevant considerations falling within s. 71(2)(e) of the svatute. This broad approach is consistent with that taken by the Commission with respect applications for certificates of public convenience and necessity. In a recent decision relating thc Vancouver Island?'ransmission Reinforcement Project, the Commission affirmed that thcrc are a broad range of interests that should be considered in determining whether a project applied for under the statute is in the public convenience and necessity. Moreover, the test is to bc a!lcuible one. /I('7Y' - ('c?rtijicure ofl'uhlic ('onvenience und.yecessity Ap,r~licrrtion,fur the liincouver Lslund 7run.smi.ssion Reinforcemen1 I'rojeci (July ) at p. 15 adopting thc reasoning from.memoriul Gardens Assn. (('un) f ~ v. d Colwooif ('rnzerery Co S.C.R. 353 I"BCT(."'J he Commission's broad approach to the public interest was also recently approved by the British Columbia Court of Appeal in an application seeking leave to appeal Srom the I3C'T(,' decision (hold emphasis added):

5 29 'fhe Commission's discussion and conclusion of the content of the public interest and the test of public convenience and necessity are relevant to the claims... that the Commission erred in holding that public convenience and necessity is to be determined by the most cost-effective option rather than what is in the public interest. The Commission was clearly alive to its obligation to consider all relevant factors, and to determine the appropriate balance in the context of identifying a viable alternative to meet the needs of Vancouver Island residents. An analysis ofthe decision as a whole demonstrates that it did so. liad the Commission limited its consideration of the factors put before it by the participants in the proceedings to matters of cost only, that would have been an error of law, as demonstrated by ~Vukina In chapter three, the Commission also discussed the necessity to consider socioeconomic and other non-financial considerations, including safety, reliability, health, aesthetic, recreation, habitat, First Nations and construction impacts 'l'his discussion demonstrates the Commission's consideration of factors other than cost-effectiveness in determining public convenience and necessity, The fifth chapter ofthe I>ecision addressed socioeconomic impacts, including safety and health issues, the impact of transmission lines on property values, and environmental and archaeological impacts.?:slim:wus~~ Xesideni.~ Aguin.sl Higher b'oltuge Overhead Lines Socieiy v. Brirish (.'olumhiu (Ihilities (,'ornmi.s.sion~ L3CCA 537 at paras. 29 and Thc judgment referred to by the Court of Appeal at para. 31 is Nukinu (7bwnship) v. C.'anudiun il'arionul Ruilwaj~ Co, a decision of the Federal Court of Appeal that held the public intcrcst included a consideration of the community affected by the abandonment of a railway station. 'ihe Court also held that this included evidence and argument by the Corporation ofthe I'ownship of Kakina, tending to show that the proposed changes would have a drastic effect upon thc economy of the region (see: for example, p. 2 of the decision). 'l'he l>istrict submits that this case is equally applicable to the within proceeding..vukinu (Townshil,) v. (,'a'anudiun iktionul Kuilwuy C:o. [I 9861 I:.C.J. 426 (C.A.) (I. In linding that it was an error for the Committee to hold that it would not take into consideration the cfsects ofthe closure ofthe railway station on the township the Federal Court osi\ppcal said the following: Afier extensivelj- reviewing the case law on the question. none of which it found dircctly on point. the Committee concluded as follows: On balance, then. the Committee is oi'the opinion that it is not entitled. by the words oi'section 120 of the Railway Act, to take into consideration thc effects of a runthrough on the Township of'nakina.

6 I lind this conclusion startling. The Committee concedes that it must have regard to the public interest. I would have thought that. by definition, the term "public interest" includes the interests of all the affected members of the public. 'The dctcrmination of what is in the public interest involves the weighing and balancing of compcting considerations. Some may be given little or no weight; others much. But surely a body charged with deciding in thc public intercst is "entitled" to consider the effects of what is proposed on all members of the public. To exclude from consideration any class or category of interests which form part of the totality of the general public interest is accordingly, in my view, an error of law justifying intervention of this Court.... If' evidence is relevant to the determination of public interest, it must be admitted and considered. For my part, I find it impossible to say that evidence dealing with the probable economic effects of the proposed changes on the surrounding communities would not be relevant to the question of public interest. By the same token, I could not say that, for example evidence as to the probably environmental effects of the proposed changes would not be relevant. liclevance is, of course always a matter of degree and will vary from case to case depending on the surrounding circumstances; that, however. goes to weight rather than admissibility. [emphasis added] :Vukinu, supra. at pp It would be equally startling if the Commission. whose entire mandatc on this typc of proceeding is to consider the public interest, were not entitled to take into account thc likcly el'l'cct ofthc 2007 ]:PA on the community of Kitimat. Indeed. the Commission held that thc impact ofl'i's:pat, the predecessor to the 2007 LPA. on the 1)istrict was a relevant consideration under s. 71. stating: I'he Cornmission accepts that there is a broad range of interests that should be considered in determining whether an energy supply contract is in the public interest I'he Commission Panel concludes that it is both impractical and undesirable to attempt a precise definition of general application as to what constitutes the public interest. 'l'he test of what constitutes the public interest is a flexible test.... I'hc Commission Panel is guided by the comments made in.vukinu. The Commission Panel should not exclude from consideration in determining the public intercst any class or category of interests which form part of the totality of the general public intercst. In particular, the Commission Panel is of the view that evidence dealing with probable economic effects flowing from the approval of I.'I'EPti+ on the surrounding community is a relevant consideration in determining the public interest. (emphasis added) In the Murrer qfu 1"iling by B(.~ tiydr~ und ijolrer Auihoriry qf'energy Supply ( 'oniuucfs i.r,i/h '4lcirn inc. f-l'tfijjl Amending Agreemen1 Amended und I?es/uredf,ong-7kmz i~lrctricily Pz{rchu.se.Agreemenr (February 2, 2007) at p. 29

7 11. This approach to determinations of the public interest is also consistent with the approach taken by other administrative bodies in this area. Most recently. the National Energy Board made the following comments in the context of considcring the public interest: I he Board's decisions are governed by the NEB Act. Section 52 requires the Board to have regard to all considerations that appear relevant to it. In particular, subsection 52(c) provides that the Board may have regard to any public interest that in the Board's opinion may be affected by granting or refusing an application 'I'he Board is of the view that its consideration ofthe overall public interest lnust traiiscend the positions of individual parties as well as government expressions of current economic and energy policy. While the Board is informed by them, it is of the view that its decision on the public interest must balance overall competing political, economic and social interests.... ln (he Muuer of Trur~s(bnudu Keystone Pipeline GP /,id lleu.~ons,fbr Ilecision X.I:.B. Decision No (September, 2007) at p 'The IXstrict submits that the broad discretion conferred upon the National Encrgj Board by section 52(c) of the ~Vutionul Energy Bourd Act is analogous to that conferred upon the Commission by s. 71(2)(e) ofthe Utilities (;'ommission Act and that the comments of the Board are equally applicable to the scope ofthis proceeding. 13. It is anticipated that B.C. IIydro andlor Alcan may seek to argue that the Commission should take a narrow view of its jurisdiction and essentially restrict its consideration to the matters specified in sub-paragraphs (2)(a)-(d) (See for example the submissions made by 13C' 1 l>dro and Alcan at the Procedural Conference held September 26, 'franscript of l'rocccdings, Vol. 1 at pg. 43. lines and pg 59, line 24 to pg 60, line 21 I. The District submits that to approach the question of public interest in such a narrow and restrictirrc manner >vould bc to ignore the broad public interest mandate set out in suh-paragraph 71(2)(c) of the statute and would repeat the error made by the Committee in the Nukina case. 14. In light ofthe foregoing, the District submits that the Commission ought to take a broad approach to the scope of its assessment of whether the 2007 fipa is in the public interest. Specifically; the Ilistriet says that. in addition to the factors enumerated in sub-paragraphs 71(2)(a) to (d) the Commissioil ought to and. indeed, is requirc to consider all issues which fill within the general public interest including. without limitation: (a) (b) the impact ofthe 2007 EPA on the District that may arise because of provisions and incentives or disincentives in the contract that could affect the iilvestment and operating decisions ofthe owners and operators ofthe aluminum industry in the Dis~rict; and the precedents that would be set by the 2007 EPA which could affect future costs of ncu suppij that arlse from.

8 (i) the manner in which BC Hydro calculates the contribution of the 2007 ISPA to its firm supply: and (ii) the free access to transmission BCI llydro is effectively providing to i\lcan for the coordination energy Alcan may buy and store under the contract. 15. In an effort to assist the Commission in defining the scope of these proceedings at an early stage, a proposed list of issues which the District says ought to be included in any Consolidated Issues List setting out the scope of this proceeding is attached as Schedule "A'' to these submissions. 16. It is submitted that each of these issues falls within the scope ofthe considerations set out in s. 71(2) of the (Iti1itie.s (:ommi.s.sion Act and. therefore. form part of the proper scope ofthcsc proceedings. i 7. I'hc 1)istricl t~otcs that the list attached as Schedule -'A" to these Submissions is not iritcndcd to he exhaustive of all ofthe issues arising out of the 2007 IIPA. The 1)istrict echoes its comments lkom thc initial I'roccdural Conference held on September 26, 2007 that it reserves the right to bring forward for consideration by the Commission any further issues that may arise as this process unfolds (e.g. out ofthe information requests made and/or responses given) that ought to fall within the proper scope of the proceeding notwithstanding the fact that tile District. the Commission or any ofthe other parties have not raised them at this early stage of the proceeding. A1.I. Of' WIIICtI IS RI~SI'F:CI'I~IILI,Y SIJBMllSEII Mark S Oulton Counsel for the Intervenor, District of Kitimat

9 SCHEDUL,E "A" lssues LlST Submitted by the Intervenor DISTRICT OF KITIMAT 1. QUANTITY, l'k1ce AND AVAILABILITY OF TIER 1 ENERGY 1.1 Is the Tier 1 Power BC Hydro is committed to purchasing from Alcan under the 2007 EPA actually "firm" power or does UC tiydro make it firm by backing it up with its own reservoirs? 1.2 Is BC Hydro calculating Alcan 's firm supply in a manner materially differently kom other potential suppliers? More specifically, what would be the amount of firm power available for sale if offered under the same terms and conditions as the F2006 <:all? 1.3 I-low does the 'l'ier 1 cnergy price compare to all potential alternative sources of supply, including the Site C project which offers the same range of products and services as the 2007 IPA'! 1.4 Ilow does the price BC Hydro is paying for incremental scheduling capacity compare to all potential alternative sources. including non-13c Hydro sources and demand side curtailn~ents of peak loads'.' 1.5 How do the prices BC Hydro is paying for the firm energy, non-firm energy, capacity, and coordination capability that it is acquiring under the 2007 EPA compare to thc prices it would have to offer to attract similar products and services from other existing sources of supply that might otherwise be serving industrial loads'? 1.6 f ow do the prices UC Hydro is paying to illcan for the firm energy, non-iirm encrgy, capacity and coordination capability compare to the actual and opportunity costs Alcan is incurring to supply those products and services'? 1.7 What price, transmission, water rental rate and other risks would Alcan need to takc into account when considering the opportunity cost of the firm energy, non-firm encrgy, capacity and coordination energy it is selling to BC IIydro in the 2007 EPA'? 1.8 What market and other risks is BC I-lydro assuming under the 2007 t:pa in thc prices it is paying ibr cncrg). eapacir) and coordination services? 1.9 What contribution will this contract in Pact make to the policy objective oi'encrgy self-sufficiency in 13C recognizing that it may be diverting supply kom industrial use or othcr loads in the province?

10 2. QIJANTITY, PRICE AKU AVAILABILITY OF TIER 2 ENERGY 2.1 Is it in the public interest fbr BC I-lydro to have an obligation to buy fier I! energy as scheduled by Alcan up to the limits set out in the 2007 EPA, regardless of BC 1 lydro's nceds and alternative opportunities at the time of the deliveries'? 3. OTIIEIl FACTORS KEI.EVANT TO THE PUBLIC INTERESl 3.1 What are the potential economic impacts of thc 2007 EPA on the Ilistrict and the surrounding area, including hut not limited to the potential impacts of the 2007 EPA on Alcan's Smelter Modernization Project and its future operations'? 3.2 Coordination Services (a) (b) (c) On what basis were the equichange and co-ordination prices set under the 2007 IIPA established:' What risks or other Alean costs are the cquichangc and co-ordination prices set under the 2007 EPA intended to compensate'? Are BC Ilydro's transmission services provided to Alcan at no cost for the coordination energy Alcan buqs'? 3.3 Precedent Valuc ofthe 2007 EPA (a) Docs the 2007 tip.4 set precedents detrimental to the public interest to the cxrcnt that: (i) (ii) (iii) it provides incentives for other industrial producers to redirect existing power generation from industrial uses to BC FIydro; it embodies a "firming arrangement" whereby Alcan's power supply is made firm through balancing of t3c Ilydro's own reservoirs and then BC Hydro agrees to buy this same power at an elevated rate on the grounds that it is "firm" power: it effectively provides Alcan with free access to BC I-lydro's transmission services whereby Alcan can buy and store powcr for re-sale at a later date at higher prices under the coordination services established under the agreement? 3.4 Ought BC Hydro to be entering into arrangements such as the 2007 EPA without a Sormal policy regarding diversion of power from industrial to public uses'?