British Columbia Utilities Commission Inquiry Respecting Site C Executive Summary of the Final Report to the Government of British Columbia November 1, 2017
About the BCUC Contents Site C Final Report key findings . . . . . . . . . .3 Who we are Community input sessions . . . . . . . . . . . . . . .4 The British Columbia Utilities Report conclusions . . . . . . . . . . . . . . . . . . . . . .5 Commission (BCUC) is an independent regulatory agency of the Government Load forecast . . . . . . . . . . . . . . . . . . . . . . . . . 11 of British Columbia that operates The price of surplus energy. . . . . . . . . . . . . . 14 under and administers the Utilities Commission Act. The BCUC is Illustrative Alternative Portfolio . . . . . . . . . 15 quasi-judicial and makes legally Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . .18 binding rulings. What we do The BCUC’s primary responsibility is the regulation of BC’s energy utilities. In addition to setting rates, the BCUC regulates all franchises, privileges, and concession agreements granted to public utilities. It is our mission to ensure that ratepayers receive safe, reliable and non-discriminatory energy services at fair rates from the utilities we regulate, while also providing utilities the opportunity to earn a fair return on their capital investments. British Columbia Utilities Commission Suite 410, 900 Howe Street Vancouver, BC Canada V6Z 2N3 Before: David M. Morton, Panel Chair and Phone: 604.660.4700 Commissioner BC Toll-free: 1.800.663.1385 Dennis A. Cote, Commissioner Fax: 604.660.1102 Karen A. Keilty, Commissioner Richard I. Mason, Commissioner Email: commission.secretary@bcuc.com
Site C Final Report key findings The BCUC is not persuaded that the Site C project will remain Schedule on schedule for a November 2024 in-service date. The Panel also finds that the project is not within the proposed budget and budget of $8.335 billion. Currently, completion costs may be in excess of $10 billion. The least The Panel finds the least attractive of the three scenarios is to suspend and restart the project in 2024. The suspension and attractive and restart scenario adds at least an estimated $3.6 billion to final most risky costs and is by far the most expensive of the three scenarios. of the three In addition, the Panel considers it the most risky scenario because, among other things, environmental permits will scenarios expire and that will require new applications and approvals. Termination & The Panel finds the Site C termination and remediation costs remediation to be approximately $1.8 billion, in addition to the costs of costs finding alternative energy sources to meet demand. The Panel finds BC Hydro’s mid load forecast to be excessively Future optimistic and considers it more appropriate to use the low energy needs load forecast in making our applicable findings as required by forecast the OIC. In addition, the Panel is of the view that there are risks that could result in demand being less than the low case. Viable The Panel believes increasingly viable alternative energy sources such as wind, geothermal and industrial curtailment alternative could provide similar benefits to ratepayers as the Site C solutions project with an equal or lower Unit Energy Cost. Risks to Neither completing Site C nor assumptions used in the Illustrative Alternative Portfolio are without risk. The Panel ratepayers reviews the risk of each approach. BCUC Site C Inquiry 3 Executive Summary of the Final Report
Community input sessions The Panel held community input sessions around the province to gather feedback on its preliminary report and the questions posed in Order-in-Council (OIC) No. 244. All Sessions were open to the public and were live audio streamed through the BCUC’s website. The Site C Inquiry Process timeline Fact gathering BC Hydro submission Commission Consultant reports review and Preliminary analysis report Other data and analysis submissions AUG 9 AUG 30 SEPT 20 The Site C Inquiry Process included: 11 3 2 304 620 Community First Nations Technical sessions sessions sessions Speakers An analysis of the submissions received in the public community input sessions revealed that the highest frequency of comments and submissions fell under one of the following ten themes: FIRST NATIONS The likelihood of The likelihood of First Nations Site C being on time Site C recouping concerns and on budget its costs Farmland/ The impact Financial agricultural on jobs impacts on concerns ratepayers BCUC Site C Inquiry 4 Consultation BC Hydro submission Commission Public consultation review and Final analysis report First Nations submissions OCT 11 NOV 1 272 704 Written Email Calls Submissions subscribers Environmental Alternatives concerns to Site C The future Social and other demand for unquantifiable electricity costs Executive Summary of the Final Report
Report conclusions On August 2, 2017, the Provincial Government issued an Order in Council (OIC) No. 244 requesting the BC Utilities Commission undertake an inquiry into certain aspects of BC Hydro’s Site C project. The OIC asked the BCUC to report on the implications of the scenarios — continuing, terminating, or suspending construction with the option to resume by 2024. In addition, we were specifically asked what the costs are to ratepayers of the suspend and terminate scenarios. We were also asked, given the energy objectives set out in the Clean Energy Act, what, if any, commercially feasible generating projects and demand side management initiatives could provide similar benefits to ratepayers with an equal or lower unit energy cost as the Site C project. In order to provide a fulsome response to the questions laid out above, we have also considered the costs to ratepayers of completing Site C. The suspension scenario The suspension scenario results in the highest cost to ratepayers as well as various other implications. The cost of putting the Site C project in a state of suspension, awaiting future remobilization in about five years, would be just as costly as terminating the project. In addition, there are the remobilization costs and the costs to complete the project beginning in 2024. There is no certainty that the remaining project budget would be adequate to complete the construction following remobilization in 2024. Contracts would have to be retendered and First Nations’ benefit agreements may have to be renegotiated. Environmental permitting would have to begin anew upon resumption of construction. The suspend scenario has the highest cost for ratepayers. BCUC Site C Inquiry 5 The OIC asked the BCUC to report on the implications of three scenarios for Site C: continuing, terminating, or suspending construction with the option to resume by 2024. The completion scenario The project is not within the proposed budget of $8.335 billion. Further, the total cost at completion may be in excess of $10.0 billion as there are significant risks remaining which could lead to further budget overruns. There is a high degree of uncertainty at this time. As such the Panel is persuaded by the analysis performed by Deloitte, which indicated that in a “high impact” scenario the budget may be exceeded by between 20 and 50 percent. In addition there are significant risks that could prevent the project from remaining on Executive Summary of the Final Report
schedule and the Panel is not persuaded that it will remain on schedule for a November 2024 in-service date. The termination scenario In the event the Site C project is terminated, the construction site must be remediated. We estimate this cost to be $1.8 billion. In addition to this remediation cost, depending upon the load, a portfolio of commercially feasible generating projects and demand side management initiatives may be required. Therefore, to answer this question requires assumptions about the load forecast. We were directed to use the forecast of peak capacity and demand submitted by BC Hydro in July 2016 as part of its Revenue Requirements Application. We reviewed submissions related to BC Hydro’s mid forecast, the low and high bounds representing the range of uncertainty and key assumptions underlying that forecast. The mid load forecast is overly optimistic, and we consider it more appropriate to use the low-load forecast for resource planning purposes. We note there are also risks that could result in demand being less than the low case. BCUC Site C Inquiry 6 ongoing issues 20-50% cost over budget $10 B current cost $8.335 B budget Site C budget The Panel finds that the project has exceeded the proposed budget of $8.335 billion, and ongoing issues such as tension cracks and other remaining risks, may incur additional unknown costs. Executive Summary of the Final Report
Comparison of costs to ratepayers for the completion and the termination scenarios Evaluation of the cost to ratepayers is not straightforward in either the completion or termination scenarios. To be competitive, an alternative portfolio must provide sufficient savings to account for the $1.8 billion in expected termination costs. Many alternative types of energy such as wind are not dispatchable so they do not provide the same benefit to ratepayers as Site C energy. The Panel discusses this issue in the Report and concludes that because BC Hydro has substantial existing dispatchable energy, energy from the alternative portfolio (which has a relatively small amount of wind) would effectively have the same value as that from Site C. During this Inquiry, Commission staff developed a draft Illustrative Alternative Portfolio using BC Hydro’s output from its PV Portfolio Analyzer, additional assumptions and input from BC Hydro and other parties. The resultant Illustrative Alternative Portfolio included in our report indicates that it is possible to design an alternative portfolio of commercially feasible generating projects and demand-side management initiatives that could provide similar benefits to ratepayers as Site C, with a To be competitive, an similar unit energy cost. alternative portfolio As can be seen in the table below, the must provide sufficient cost to ratepayers of Site C and the savings to account for the Illustrative Alternative Portfolio are virtually $1.8 billion in expected equivalent, within the uncertainty inherent in termination costs. the assumptions. Rate Impact ($million) Unit Energy Cost ($/MWh) Illustrative Illustrative Scenario Alternative Site C Difference (A-B) Alternative Site C Portfolio Portfolio Commission Assumptions $ 3,234 $ 3,188 $ 46 $ 32 $ 44 The table above incorporates the following assumptions (Commission Assumptions): • Low load scenario • The Panel Mid-C market electricity price forecast • Site C total costs of $10 billion • Termination costs of $1.8 billion amortized over 30 years • BC Hydro financing for all resources in the Illustrative Alternative Portfolio Commission Assumptions are consistent with the Panel Findings with the exception of termination costs amortization period, on which the Panel made no finding. The Panel undertook sensitivity analysis to identify the key variables that could have a material effect on the results. The results are discussed later in this Executive Summary. BCUC Site C Inquiry 7 Executive Summary of the Final Report
Other implications Regardless of the comparative costs, there are also other issues to consider when comparing the completion and termination cases. Both scenarios involve risk that is not easy to quantify. The major risk of Site C in the short term is whether there will be further construction cost overruns. Site C is a major construction project and therefore inherently at risk of larger cost overruns than a smaller project. It has already exceeded its budget, only two years into a nine-year schedule. There are tension cracks and disputes with its contractors both of which remain unresolved. Although the project is currently expected to be completed by the publicly announced date of 2024, it is one year behind the schedule to which it was actually being managed. At this time, ratepayers are at risk for the known over budget amount, as well as further overages. In the longer term, a disruptive technology such as affordable utility – or home – scale storage technology could reduce the anticipated benefits of Site C, by allowing the production of non-dispatchable energy from renewables at declining prices. Combined with a continued glut in North American energy markets, this could make it increasingly difficult to sell Site C surplus energy. In addition, disruptive storage technology could incent customers to generate their own electricity. This is more likely to be the case if BC Hydro’s rates continue to increase as a result of the requirement for BC Hydro to clear regulatory accounts periodically, the considerable future capital expenditures that will be required to maintain heritage assets, and the costs to complete Site C (including interest costs and the risk of any further cost overruns) and other upward pressure on rates. While battery storage technology has been raised as part of a possible alternative to Site C, we note that a similar discussion is being held in many other jurisdictions in North America. In Appendix A of the Final Report, the Panel found that utility scale battery storage has reached the early stage of commercial feasibility. We are aware BCUC Site C Inquiry 8 The major risk of Site C in the short term is that there will be further construction cost overruns. of a pilot test installation and at least one application for other installations. Further, as noted in Appendix A, numerous firms are planning battery production facilities. There is no guarantee that battery storage will reach full commercial feasibility or, if it does, at what price. However, if it were to happen, demand for Site C’s flexible energy could be reduced and BC Hydro and Powerex may not be able to realize any “flexibility premium.” In addition, BC Hydro’s financing cost assumption that the cost of debt will not change over 70 years may not be supportable. This period far exceeds the current life span of Provincial Government issued debt instruments. Some of these risks can be mitigated. For example, prudent oversight of the Site C construction project can keep budget overruns to a minimum. However, some risks, such as the adoption of disruptive technologies and interest rate fluctuations are inherent in such a long-term project. The assumptions used in the Illustrative Alternative Portfolio are not without risk. Estimates of the amount of load curtailment available could be overly optimistic. The cost of wind may be higher than estimated. There may actually be no geothermal potential. In any of these cases, Site C would have a lower cost to ratepayers, provided it avoided the risks it faces, which are outlined above. Executive Summary of the Final Report
Some risks in the assumptions used in the Illustrative Alternative Portfolio can be mitigated. For example, BC Hydro could implement time based rates for residential customers and hot water shut offs during peak times could be encouraged. Time of use rates can be introduced on an optional basis, by providing a credit on the residential customer’s bill if they voluntarily curtail usage during peak periods. Other ways to mitigate risk and meet future energy needs include changes to government policy. While the Panel takes no position on these mitigation strategies, the evidence Risks associated with Site C and Illustrative Alternative Portfolio Risks with Risks with Illustrative Site C Alternative Portfolio Subject to larger May actually be no cost overruns than geothermal potential a smaller project would be Already used up Estimates of the load contingency fund and curtailment available is currently over budget could be overly by more than 20% optimistic Ratepayer is at risk for Cost of wind may be any as yet unknown higher than estimated further cost overages Unresolved issues such Load could end up in as tension cracks and the mid to high range, ongoing disputes with or higher contractors Technological changes may result in a lower than predicted demand for energy A continued glut in North American energy markets would make it increasingly difficult to sell surplus energy BCUC Site C Inquiry 9 received in this process suggest that the following options are available to government: • Repatriate some or all of the Columbia River Treaty entitlement. This energy is generated from water stored behind BC Hydro dams in British Columbia and is as firm and flexible as the energy from Site C. • Remobilize Burrard Thermal and reduce the use of Island Cogen for export to provide capacity for the limited number of 16-hour winter peaks. • Increase reliance on the market to provide capacity for the limited number of 16-hour winter peaks. What’s in the BCUC’s Illustrative Alternative Portfolio? The Commission Staff’s Illustrative Alternative Portfolio includes approximately 80 MW of geothermal and 200 MW of industrial load curtailment. Demand-side management such as energy efficiency programs Industrial load curtailment includes paying industrial and commercial customers to monitor and lower their usage during peak events Wind energy Geothermal energy Termination costs of $1.8 billion are included in the rate impact analysis Executive Summary of the Final Report
In addition to the risks outlined above, other factors to be considered include: 1. Potential cost to ratepayers related to infringement of First Nation treaty and aboriginal rights if Site C is completed. 2. The impact of the loss of valuable agricultural land due to flooding. 3. Possible down-stream impact on the Peace-Athabasca Delta in the event Site C is completed. 4. The potential for a change in either BC Hydro or the Provincial Government debt or bond rating. 5. The impact of termination to First Nations that have entered into agreements with BC Hydro and the Province. 6. The impact of continuing with Site C on those First Nations that have not entered into agreements with BC Hydro and the Province. 7. The impact of termination on McLeod Lake Indian Band will have unaccommodated impacts to its rights. 8. The effect the termination of Site C may have on employment and other economic impacts in the Peace River Region. Actual load may be higher than the low load forecast. Further, government policy regarding electrification could impact the load forecast to the higher side. The sensitivity analysis shows that although Site C’s cost to ratepayers rises with the load, it rises less quickly than does the Illustrative Alternative Portfolio’s costs to ratepayers. BCUC Site C Inquiry 10 Disruptive factors In addition to construction and operating risk, the Panel has also considered the risk from disrupters during the economic life of the Site C dam, which could include: Technological advances in renewable energies such as solar power Storage capacity increased growth and affordability Electric vehicle use and infrastructure growth Decentralization as generation is connected to distribution networks Internet of Things which can provide and automate load-shifting ability to consumers Demand-side response as consumers take control of their usage Fuel-switching can lower energy demand and costs for consumers Climate change Co-generation provides a more energy-efficient generation of electricity and heat Executive Summary of the Final Report
Load forecast Load forecasting is a technique used by utilities to forecast future energy demand. In the Preliminary Report it was noted that since load forecasting is an inherently uncertain task with volatile drivers of future requirements, BC Hydro’s load forecast consists of a high and low band and includes a mid-level projection. In summary, BC Hydro: • Develops its mid-level forecast incorporating models for its three main customer classes (residential, commercial/light industrial and industrial) and adds these model results to other expected load; • Uses the mid forecast for resource planning; • Uses the high and low forecast bands to provide an indication of the magnitude of load uncertainty as well as to develop BC Hydro’s contingency resource plans; and • Uses key drivers including projections of economic variables such as Gross Domestic Product (GDP), efficiency of residential and commercial appliances, temperature, commodity prices and electricity rate increases. Current load forecast after DSM – energy 90,000 80,000 70,000 60,000 50,000 40,000 Current Load forecast load uncertainty range 30,000 forecast 20,000 10,000 0 Fiscal Year (year ending March 31) Findings on the current load forecast The Panel finds BC Hydro’s mid load forecast to be excessively optimistic and considers it more appropriate to use the low load forecast in making our applicable findings as required by the OIC. In addition, the Panel is of the view that there are risks that could result in demand being less than the low case. While the Panel cannot precisely determine the adjustments necessary to the mid load forecast we can, based on our view of the issues and factors impacting demand, place more weight on an estimate elsewhere within the range of uncertainty set out by BC Hydro. The Panel focuses on those issues and factors that could reasonably be expected to influence demand from the expected case (mid load forecast) to the high load and low load case. An overwhelming majority of the Panel’s findings summarized below suggest the mid load forecast is not the most probable outcome. Weighing the Panel’s findings on the identified issues and other factors impacting demand, the Panel identifies that there is significant downward BCUC Site C Inquiry 11 E n e r g y ( G W h ) 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5 2 0 2 6 2 0 2 7 2 0 2 8 2 0 2 9 2 0 3 0 2 0 3 1 2 0 3 2 2 0 3 3 2 0 3 4 2 0 3 5 2 0 3 6 Current load forecast after DSM – capacity 18,000 16,000 14,000 12,000 10,000 8,000 Load forecast Current 6,000 load uncertainty range 4,000 forecast 2,000 0 Fiscal Year (year ending March 31) Executive Summary of the Final Report P e a k ( M W ) 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5 2 0 2 6 2 0 2 7 2 0 2 8 2 0 2 9 2 0 3 0 2 0 3 1 2 0 3 2 2 0 3 3 2 0 3 4 2 0 3 5 2 0 3 6
pressure on demand indicating the low load forecast is the most probable forecast within BC Hydro’s Current Load Forecast range of uncertainty. The Panel makes the following findings related to the Current Load Forecast: Recent developments The Panel finds the developments since the Current Load Forecast was prepared, as reported by BC Hydro, can reasonably be expected to reduce demand from the expected case or mid forecast. The Panel acknowledges there have been some recent positive developments in non-LNG large industrial but there is risk and volatility associated with the industrial load and it is susceptible to cyclical ups and downs. Therefore, the Panel is unable to draw any conclusions that recent developments will result in a permanently positive impact on industrial demand or offset the very negative developments which cast doubt on the potential of the LNG sector to significantly impact demand. In the Panel’s view, developments since the Current Load Forecast was prepared have reduced the probability that the majority of BC Hydro’s forecast LNG load will materialize. Accuracy of historical load forecasts As noted in its Preliminary Report, the Panel finds that the historical instances of over- forecasts are greater than under-forecasts, especially in the industrial load, and that the accuracy of BC Hydro’s historical industrial forecasts looking out three and six years has been considerably below industry benchmarks. While the Panel does not place significant weight on the historical inaccuracies in the load forecast, it does approach the Current Load Forecast with some skepticism, especially as it relates to the industrial load forecast. BCUC Site C Inquiry 12 GDP and other forecast drivers The Panel finds the GDP and disposable income estimates used by BC Hydro in its Current Load Forecast are higher than similar Conference Board of Canada estimates, and these differences have not been fully explained. The Panel finds BC Hydro’s mid load forecast is higher than if it used the CBoC estimates and adjusting for this could reasonably be expected to influence demand towards the low load case. Price elasticity Price elasticity measures how rate increases impact demand. The Panel finds the -0.05 long-run price elasticity used by BC Hydro for all rate classes to be too low in magnitude to reflect the degree of change in demand for a given change in price. Accordingly, the Panel finds BC Hydro’s mid load forecast is higher than otherwise would be the case since it used lower price elasticity factors and that adjusting for this would reduce demand towards BC Hydro’s low load forecast case. Price elasticity Price elasticity measures how rate increases impact demand. This graphic demonstrates the relationship between a change in the amount of electricity demanded relative to the change in its price. Price of electricity Regular customers Demand for electricity Rate-sensitive customers (industrial, low income) Time Executive Summary of the Final Report
Future rate increases Flattening electricity demand The Panel is particularly concerned about the Many participants, including BC Hydro, appropriateness of BC Hydro’s assumption recognize that, since the recession, demand that there will be no real rate increases has not returned to what it was and evidence between F2025 and F2036. The Panel finds indicates that total demand is not growing BC Hydro’s demand forecast is sensitive to in most places in North America – in most rate changes even using BC Hydro’s low price cases it is flat or declining. The Panel finds BC elasticity factors. Accordingly, any real increase Hydro’s expected compound growth rate for in rates beyond the rates reflected in the 2013 the residential, commercial and light industrial 10 Year Rates Plan and any subsequent real sectors to be significantly higher than the flat rate increase could reasonably be expected to or declining growth rates forecast in other influence demand towards the low load case. North American jurisdictions. In the Panel’s view, a likely explanation for this is the result The Panel finds there will be considerable of lower demand-side management (DSM) upward pressure on rates for the remainder of spending and DSM program differences. For the 2013 10 Year Rates Plan and beyond Fiscal example, BC Hydro has not implemented 2024. The Panel finds the risk associated with time-of-use and other load curtailment this upward pressure on rates is especially measures that have been broadly adopted concerning given the submissions related to elsewhere in North America. potential ”demand destruction” that could result from the impact of real rate increases on already vulnerable industrial customers and also the likelihood that even nominal rate increases will increase energy poverty among BC’s low income households. Potential disruptive trends and risks Consistent with BC Hydro’s Current Load Forecast, the Panel finds additional load requirements from electrification initiatives should not be included in the load forecast for the purpose of resource planning. Although available information indicates that the effects of electrification on BC Hydro’s load forecast could potentially be significant, the timing and extent of those increases remain highly uncertain. The Panel acknowledges the numerous submissions identifying disruptive factors that could potentially decrease demand but does not identify any specific trends that would suggest an adjustment to the Current Load Forecast. BCUC Site C Inquiry 13 Executive Summary of the Final Report
The price of surplus energy Most energy that is exported from BC is delivered to Mid-C, a major North American electricity trading point. The graph below shows various forecasts for Mid C prices. BC Hydro used the ABB Spring 2016 forecast. Mid-C Average Price Forecast Comparison Market prices have $100 the biggest influence over this period $ 90 2024 2032 $ 80 $ 70 $ 60 $ 50 $ 40 $ 30 ABB Forecast Range ABB Forecast: Spring 2016 $ 20 IHS Rivalry Scenario: Spring 2016 $ 10 PIRA Forecast: October 2015 NWPP Forecast: 2016 $ 0 2016 2020 2024 2028 2032 2036 2040 However, the Panel found that a more The potential market for the extra capacity conservative approach for the estimation of and flexibility benefits offered by Site C is a future market pricing is warranted, given that more difficult issue. BC Hydro suggests that markets have been in decline for the past it is optimal timing for surplus energy due to decade and that BC Hydro’s proposed Mid C the closure of coal generation plants in the forecast should not be relied upon. Accordingly, Western US and Alberta in the mid to late the Panel finds that, for purposes of this 2020’s. Similar shut downs for nuclear and assessment, the future market price for 2024 natural gas in California are clear indications and beyond should be considered to be at a that there will be a need to fulfill capacity point mid-way between the proposed forecast requirements. However, what is less clear is and the low end of BC Hydro’s Mid C market whether BC Hydro, through Powerex, can be price forecast. successful in reaching agreements to supply this capacity and flexibility. BCUC Site C Inquiry 14 Executive Summary of the Final Report M i d C A v e r a g e P r i c e ( 2 0 1 8 C A / M W h )
Illustrative Alternative Portfolio The Panel is of the view that BC Hydro’s Alternative Portfolio was not the lowest cost portfolio. We directed Commission staff to develop a draft Illustrative Alternative Portfolio and sought comment from parties. The Panel is mindful of the comments by BC Hydro and other parties that resource planning is a complex exercise. The alternative portfolio developed by Commission staff are not a substitute for BC Hydro’s planning process. We consider this alternative portfolio to be illustrative only; it was developed as a way to answer the questions posed in the OIC. The Illustrative Alternative Portfolio was informed by the evidence available including portfolios presented by BC Hydro that were produced by its PV Portfolio Analyzer and also comments from BC Hydro and other parties. Commission staff created three instances of the Illustrative Alternative Portfolio, one for each of the load forecasts under consideration: high, mid and low. The results are as follows: Summary Results of the Illustrative Alternative Portfolio (2018$) High Load Forecast Illustrative Alternative • 441 MW of wind projects Portfolio composition starting in F2025, 288MW in F2026 • DSM initiatives (energy efficiency, optional time of use (TOU) rate, capacity focused DSM, industrial curtailment • 81 MW of geothermal projects starting in F2025 Rate Impact Illustrative Alternative Portfolio $ 5.121 billion We have analysed the sensitivity of the cost to ratepayers of both the Illustrative Alternative Portfolio and Site C to changes in various input assumptions: Illustrative Alternative Portfolio Rate Impact Sensitivity Analysis Load Termination costs Financing costs Termination costs amortization Wind costs Geothermal costs Market price of surplus $3,000 $3,500 $4,000 BCUC Site C Inquiry 15 Medium Load Forecast Low Load Forecast • 438 MW of wind projects • 444 MW of wind projects starting between F2029 starting between F2039 and F2031 and F2041 • DSM initiatives (energy • DSM initiatives (energy efficiency, optional efficiency, optional TOU rate, capacity TOU rate, capacity focused DSM, industrial focused DSM, industrial curtailment) curtailment) • 81 MW of geothermal projects starting in F2025 $ 4.618 billion $ 3.234 billion High Value Low Value $4,500 $5,000 $5,500 $6,000 Executive Summary of the Final Report
In the diagram above, the horizontal axis is the cost to ratepayers of the Illustrative Alternative Portfolio given changes in various input assumptions. The wider the range of costs to ratepayers the more sensitive the portfolio is to that particular input. As can be seen in the graph above, the inputs and assumptions that have the greatest impact on the cost to ratepayers of the Illustrative Alternative Portfolio in descending order are: 1. The magnitude of the load forecast 2. Site C termination costs 3. Financing costs 4. The length of the amortization period for the Site C termination costs 5. Wind and geothermal energy capital and O&M costs 6. The market price of surplus energy The graph shows the cost to ratepayers of the Base Case described below, and variations around the base case. The Base Case is in the centre of the graph and is $4.918 billion. Then, each variable is changed to a low or high value and the cost to ratepayers of that single change (while holding the other inputs constant) is shown. For example, if the Load forecast is changed to Low instead of Medium, the cost to ratepayers would be reduced by $1.558 billion from $4.918 billion to $3.36 billion, while all the other inputs remained as defined in the Base Case. The Base Case differs from the Commission scenario discussed above. For the purpose of the sensitivity analysis, the Base Case assumptions are: • Mid load scenario • The Panel Mid-C market electricity price forecast • Site C termination costs of $1.8 billion amortized over 30 years • IPP financing of 6.4% for wind and geothermal energy; BC Hydro financing for DSM For comparison purposes, the sensitivity analysis was repeated for the Site C project as follows: Site C Rate Impact Sensitivity Analysis Total Site C costs High Value Load Low Value Market price of surplus $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 For Site C, as seen in the graph above, the base case is completion costs of $10 billion, BC Hydro’s mid load forecast and the Panel’s Mid C forecast assumptions. The inputs and assumptions that have the greatest impact on rates are the Site C total costs and the load forecast. The market price of surplus energy has much less impact on the costs to ratepayers. BCUC Site C Inquiry 16 Executive Summary of the Final Report
The sensitivity analysis illustrates the effect of changing one input assumption at a time. To see the effect of changing more than one variable at a time, we provide a few sample scenario results below: Cost to Ratepayers ($million) (NPV of the Incremental Revenue Requirement) Illustrative Scenarios Alternative Site C Portfolio Commission Scenario $ 3,234 $ 3,188 Variants from the Commission Assumptions Medium load forecast $ 4,618 $ 3,969 Medium load forecast + $12 billion Site C $ 4,618 $ 4,129 cost Low load forecast + $12 billion Site C cost $ 3,234 $ 4,129 Low load forecast + higher wind- $ 3,360 $ 3,188 geothermal financing High load forecast $ 5,212 $ 4,325 High load forecast + $12 billion Site C cost $ 5,121 $ 5,266 The Illustrative Alternative Portfolio indicates that it is possible to design an alternative portfolio of commercially feasible generating projects and demand-side management initiatives that could provide similar benefits to ratepayers as Site C. BCUC Site C Inquiry 17 Unit Energy Cost ($/MWh) Difference Illustrative (A-B) Alternative Site C Portfolio $ 46 $ 32 $ 44 $ 649 $ 34 $ 44 $ 489 $ 34 $ 54 $ (895) $ 32 $ 54 $ 172 $ 33 $ 44 $ 796 $ 31 $ 44 $ (145) $ 31 $ 54 Executive Summary of the Final Report
Conclusions We have not been asked to make recommendations or to identify which option has the highest cost to ratepayers or more significant implications than others. Nevertheless, we have provided our view that not only is the suspension scenario the greatest cost to ratepayers of the three scenarios, it also has other negative implications. We take no position on which of the termination or completion scenarios has the greatest cost to ratepayers. The Illustrative Alternative Portfolio we have analyzed, in the low-load forecast case, has a similar cost to ratepayers as Site C. If Site C finishes further over budget, it will tend to be more costly than the Illustrative Alternative Portfolio is for ratepayers. If a higher load forecast materializes, the cost to ratepayers for Site C will be less than the Illustrative Alternative Portfolio. We have provided a discussion of the risk implications of each alternative in order to assist in the evaluation. BCUC Site C Inquiry 18 Executive Summary of the Final Report
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