B-1 Fred James Chief Regulatory Officer Phone: 604-623-4046 Fax: 604-623-4407 [email protected] February 27, 2018 Mr. Patrick Wruck Commission Secretary and Manager Regulatory Support British Columbia Utilities Commission Suite 410, 900 Howe Street Vancouver, BC V6Z 2N3 Dear Mr. Wruck: RE: British Columbia Utilities Commission (BCUC or Commission) British Columbia Hydro and Power Authority (BC Hydro) Electricity Purchase Agreement (EPA) Extension – Armstrong Wood Waste Co-Generation and NWE Williams Lake Wood Waste Facilities BC Hydro writes to file with the Commission two energy supply contracts in accordance with section 71 of the Utilities Commission Act (UCA):  An agreement dated November 17, 2017, between BC Hydro and Tolko Industries Ltd. (Tolko) that amends and extends a 2009 electricity purchase agreement (Tolko Armstrong Extension Agreement) for its wood waste co-generating facility near Armstrong, B.C. (Armstrong Co-Gen Facility); and  An agreement dated December 29, 2017, between BC Hydro and Atlantic Power Preferred Equity Ltd. (Atlantic Power) that amends and extends a 1990 electricity purchase agreement (NWE Extension Agreement) for its wood waste generating facility near Williams Lake, B.C. (NWE Williams Lake Facility). These agreements (collectively referred to as Extension Agreements) are “energy supply contracts” under Part 5 of the UCA. Under section 1.1.2 of the British Columbia Utilities Commission Rules for Energy Supply Contracts for Electricity (the Rules),adopted by Commission Order No. G-61-12, energy supply contracts shall be filed with the Commission within 60 days of the entry of the contract. On January 5, 2018, BC Hydro requested an extension, up to February 27, 2018, to file the Tolko Armstrong Extension Agreement so that both the Tolko Armstrong Extension Agreement and NWE Extension Agreement can be filed together. On January 12, 2018, the Commission granted BC Hydro’s extension request. In this filing (Filing), BC Hydro requests an order from the Commission under section 71 of the UCA that the Tolko Armstrong Extension Agreement is in the public interest and is accepted for filing. A similar order is also requested for the NWE Extension Agreement. A copy of the draft form of requested Order is attached as Appendix A. At the same time British Columbia Hydro and Power Authority, 333 Dunsmuir Street, Vancouver BC V6B 5R3 www.bchydro.com February 27, 2018 Mr. Patrick Wruck Commission Secretary and Manager Regulatory Support British Columbia Utilities Commission Electricity Purchase Agreement (EPA) Extension – Armstrong Wood Waste Co- Generation and NWE Williams Lake Wood Waste Facilities Page 2 of 3 of, or soon after, this Filing, BC Hydro will provide a notice of this Filing to the registered interveners in BC Hydro’s most recent revenue requirements application in accordance with section 1.1.2 of the Rules. A copy of the Tolko Armstrong Extension Agreement is provided as Appendix B. The Tolko Armstrong 2009 EPA, a correction letter dated November 18, 2009 and a notice of modification to hourly firm energy amount, dated February 26, 2010, are provided as Appendix C1, C2, and C3 respectively, in the confidential version of the Filing. For ease of review and reference, we also include a blacklined version showing the amendments made to the Tolko Armstrong 2009 EPA (which does not incorporate the corrections and modifications made in 2009 and 2010, respectively, as these changes have been superceded by the Tolko Armstrong Extension Agreement amendments). This black-line is provided as Appendix D. A copy of the NWE Extension Agreement is provided as Appendix E. The NWE EPA dated June 30, 1990, and the amending agreements dated April 25, 1991 and October 18, 1999, are provided as Appendix F1, F2, and F3 respectively, in the confidential version of the Filing. For ease of review and reference, the black-lined version provided as Appendix G shows the amendments made by the NWE Extension Agreement to a consolidated version of NWE EPA (i.e., consolidated version incorporates the amendments made as of April 25, 1991 and October 18, 1999). The NWE Curtailment Agreement is also provided as Appendix H in the confidential version of this Filing. The appendices also include relevant excerpts from BC Hydro’s Integrated Resource Plan and the British Columbia's Energy Objectives as Appendix I and J, respectively. BC Hydro acknowledges the correspondence from William J. Andrews, dated February 16, 2018, with respect to the NWE Extension Agreement. Mr. Andrews inquired whether the rail ties would be used as fuel source during the extension period. As noted on Page 16 of the application, in the NWE Extension Agreement, Atlantic Power has contractually committed not to use railway ties as a fuel supply source during the period that the NWE Extension Agreement is in effect. Confidentiality BC Hydro is of the view that key or specific commercial terms and conditions relating to the Extension Agreements, such as the pricing information and cost-effectiveness benchmarks, are commercially sensitive and the public disclosure of such information will harm BC Hydro’s negotiating position with respect to further electricity purchase agreements. Certain information in this Filing and the Extension Agreements are also considered commercially sensitive to the independent power producers. BC Hydro has thus redacted commercially sensitive information from the public version of the Filing. BC Hydro has also redacted in their entirety the Tolko Armstrong Extension Agreement (Appendix B), the Tolko Armstrong EPA and amendments (Appendix C1, C2, and C3), and the blackline version of the Tolko Armstrong EPA (Appendix D). Similarly, the NWE February 27, 2018 Mr. Patrick Wruck Commission Secretary and Manager Regulatory Support British Columbia Utilities Commission Electricity Purchase Agreement (EPA) Extension – Armstrong Wood Waste Co- Generation and NWE Williams Lake Wood Waste Facilities Page 3 of 3 Extension Agreement (Appendix E), NWE EPA and amending agreements (Appendix F1, F2, and F3), and the consolidated blackline version of the NWE EPA (Appendix G), and the NWE Curtailment Agreement (Appendix H) are redacted in their entirety. As provided by section 42 of the B.C. Administrative Tribunals Act and Part IV of the British Columbia Utilities Commission’s Rules of Practice and Procedure, and consistent with the Commission’s previous practice, BC Hydro requests that the Commission keep the above noted information confidential as it is commercially sensitive to BC Hydro, and the counter-parties, and if publicly disclosed may compromise BC Hydro’s negotiating position with respect to other EPAs. Acknowledging the interest of Mr. Andrews with respect to the NWE Extension Agreement, BC Hydro confirms that it would not object to providing the confidential version of the NWE Extension Agreement to Mr. Andrews upon Mr. Andrews executing and submitting to the Commission a confidentiality declaration and undertaking form. For further information, please contact Geoff Higgins at 604-623-4121 or by email at [email protected]. Yours sincerely, Fred James Chief Regulatory Officer cu/rh Enclosure Copy to: BCUC Project No. 3698869 (F2017 to F2019 Revenue Requirements Application) Registered Intervener Distribution List. Armstrong Wood Waste Cogeneration Plant and NWE Williams Lake Wood Waste Electricity Purchase Agreement Extension Agreements PUBLIC PUBLIC Table of Contents 1 Introduction and Approval Sought ...................................................................... 1 2 Notice of Filing and Regulatory Review .............................................................. 3 3 Biomass EPAs .................................................................................................... 5 3.1 Current Status and Pending Development ................................................ 5 3.2 Benefits of Existing Biomass Resources ................................................... 6 4 Facility Descriptions and Associated EPAs ........................................................ 9 4.1 The Armstrong Co-Gen Facility and its EPA ............................................. 9 4.2 The NWE Williams Lake Facility and its EPA .......................................... 10 5 Extension Agreements ..................................................................................... 11 5.1 Tolko Armstrong Extension Agreement Amendments ............................. 11 5.2 NWE Extension Agreement Amendments .............................................. 14 6 Cost Effectiveness and Risk Assessment ........................................................ 17 6.1 Cost Effectiveness Assessment .............................................................. 17 6.2 Risk Assessment..................................................................................... 20 6.2.1 Tolko Armstrong Extension Agreement .................................... 20 6.2.2 NWE Extension Agreement ...................................................... 21 7 Extension Agreements In the Public Interest .................................................... 22 8 First Nations ..................................................................................................... 25 List of Tables Table 1 Key Commercial Terms of the Tolko Armstrong Extension Agreement ........................................................................................ 12 Table 2 Energy Price Comparison of Tolko Armstrong EPA ......................... 13 Table 3 Key Commercial Terms of the NWE Extension Agreement ............. 15 Table 4 Energy Price Comparison of NWE EPA ........................................... 16 Table 5 Pricing Benchmarks ......................................................................... 19 Table 6 Section 71(2.21) Criteria Consideration for the Extension Agreements ...................................................................................... 24 Armstrong Wood Waste Cogeneration Plant and NWE Williams Lake Wood Waste Electricity Purchase Agreement Extension Agreements Page i PUBLIC Appendices Appendix A Draft Order Appendix B Tolko Armstrong Extension Agreement Appendix C Tolko Armstrong EPA Appendix D Tolko Armstrong EPA (consolidated with amendment table) Blackline showing Extension Agreement Amendments Appendix E NWE Extension Agreement Appendix F NWE EPA and Amending Agreements Appendix G NWE EPA (consolidated with prior amendments) Blackline showing Extension Agreement Amendments Appendix H NWE Curtailment Agreement Appendix I 2013 Integrated Resource Plan Excerpts Appendix J British Columbia's Energy Objectives Armstrong Wood Waste Cogeneration Plant and NWE Williams Lake Wood Waste Electricity Purchase Agreement Extension Agreements Page ii PUBLIC 1 Introduction and Approval Sought 1 2 BC Hydro, pursuant to section 71 of the Utilities Commission Act (UCA), applies for 3 acceptance by the British Columbia Utilities Commission (BCUC or Commission) of 4 the following two agreements: 5  An agreement dated November 17, 2017, between BC Hydro and Tolko 6 Industries Ltd. (Tolko) that amends and extends a 2009 electricity purchase 7 agreement (Tolko Armstrong Extension Agreement) for its wood waste 8 co-generating facility near Armstrong, B.C. (Armstrong Co-Gen Facility) until 9 June 30, 2019 (or September 30, 2019 if BC Hydro exercises its option to 10 extend the end date); and 11  An agreement dated December 29, 2017, between BC Hydro and Atlantic 12 Power Preferred Equity Ltd. (Atlantic Power) that amends and extends a 1990 13 electricity purchase agreement 1 (NWE Extension Agreement) for its wood 14 waste generating facility near Williams Lake, B.C. (NWE Williams Lake 15 Facility) until June 30, 2019 (or September 30, 2019 if BC Hydro exercises its 16 option to extend the end date). 17 The two agreements that are the subject of this filing (Filing) are referred to as 18 “Extension Agreements” collectively and each project’s existing electricity purchase 19 agreement (prior to the Extension Agreement amendments) is referred to, 20 respectively, as the “Tolko Armstrong EPA” and the “NWE EPA”. The Armstrong 21 Co-Gen Facility and the NWE Williams Lake Facility are referred to collectively as 22 the “Biomass Facilities”. The description of the two Biomass Facilities and the 23 associated EPAs, including the regulatory history of each respective EPA, is in 1 The 1990 EPA was between BC Hydro and NW Energy (Williams Lake) Corp.; thus, the independent power producer’s facility has traditionally been referred to as the “NWE Williams Lake WW” project. For this Filing and for consistency of reference, BC Hydro continues to refer to this facility as the NWE Williams Lake facility or project. Armstrong Wood Waste Cogeneration Plant and NWE Williams Lake Wood Waste Electricity Purchase Agreement Extension Agreements Page 1 PUBLIC 1 section 4 below. The key commercial terms of the Extension Agreements, including 2 the amendments made concurrently with the extension, are detailed in section 5 3 below. 4 The Extension Agreements are short-term extensions to each facility’s existing EPA. 5 The Tolko Armstrong EPA was to expire on November 20, 2017 and the NWE EPA 6 was to expire on April 1, 2018. 7 Unlike hydroelectric facilities, biomass facilities must source and contract for fuel 8 supply. To ensure we are providing energy from clean or renewable resources at the 9 best value to our customers, BC Hydro, in consultation with government, is 10 developing a longer term energy strategy for biomass facilities that will take into 11 consideration fuel supply availability and cost-effectiveness. At this time, BC Hydro 12 is targeting to have a strategy in relation to the potential procurement of biomass 13 energy completed and implemented by June 2019. It is the timing of the 14 implementation of this strategy that has helped inform the duration of the short term 15 extensions. 16 For both the Tolko Armstrong Extension Agreement and the NWE Extension 17 Agreement, the energy prices will be lower for BC Hydro than that under the existing 18 EPAs. However, the energy prices are above BC Hydro’s opportunity cost, as 19 discussed in section 6.1 below, and hence the procurement of this energy is not 20 itself cost-effective. The extensions of these EPAs act as bridging mechanisms until 21 a biomass energy strategy is developed and adopted, which will enable BC Hydro to 22 make decisions on longer-term biomass EPA renewals. The purpose of the 23 Extension Agreements is to manage risk in relation to BC Hydro’s long-term need for 24 energy and capacity. These short-term extensions allow the Biomass Facilities to 25 continue to operate and provide energy and capacity from clean or renewable 26 resources contributing to the reliability of our system. The reasons for the Extension 27 Agreements are further set forth in section 3 of this Filing. Armstrong Wood Waste Cogeneration Plant and NWE Williams Lake Wood Waste Electricity Purchase Agreement Extension Agreements Page 2 PUBLIC 1 Each Extension Agreement is an “energy supply contract” under Part 5 of the UCA. 2 BC Hydro requests an order from the BCUC under section 71 of the UCA that the 3 Tolko Armstrong Extension Agreement is in the public interest and is accepted for 4 filing. A similar order is also requested for the NWE Extension Agreement. A copy of 5 the draft form of requested Order is attached as Appendix A. The commercial terms 6 of the Extension Agreements are commercially sensitive and confidential. 7 Accordingly, copies of the Extension Agreements are attached as Appendix B and 8 Appendix E to the confidential version of this Filing for the BCUC only. 2 Notice of Filing and Regulatory Review 9 10 Concurrent with this Filing, BC Hydro will provide notice to Tolko and Atlantic Power 11 and the registered interveners in BC Hydro’s most recent revenue requirements 12 application in accordance with section 1.1.2 of the British Columbia Utilities 13 Commission Rules for Energy Supply Contracts for Electricity (Rules), adopted by 14 Commission Order No. G-61-12. This Filing fulfils the filing obligations of all parties 15 to the Extension Agreements under section 1.1.3 of the Rules. 16 BC Hydro believes that the BCUC can issue the requested Order without a hearing 17 as the information contained in this Filing provides all the information necessary for 18 the BCUC to determine that the Extension Agreements are in the public interest in 19 accordance with the criteria set out in section 71 of the UCA, including: 20  The Filing, together with appendices, provides the information necessary for the 21 Commission to determine that the Tolko Armstrong Extension Agreement and 22 NWE Extension Agreement are each in the public interest; 23  Pursuant to the Extension Agreements, BC Hydro is buying essentially the 24 same electricity product from the same generating facilities. The EPAs are 25 amended with lower prices (with no increased purchase obligations on 26 BC Hydro) during the extension period. In addition, there are enhancements to Armstrong Wood Waste Cogeneration Plant and NWE Williams Lake Wood Waste Electricity Purchase Agreement Extension Agreements Page 3 PUBLIC 1 certain terms to the benefit of BC Hydro (e.g., BC Hydro turn-down rights, 2 simplified energy pricing structures). Turn-down rights enable BC Hydro to 3 reduce its energy purchase obligations under an EPA; and the turn-down price 4 is the cost to BC Hydro for having the generator’s capacity available to supply 5 energy if and when requested by BC Hydro during a turn-down period; 6  BC Hydro is in the process of developing a biomass energy strategy for 7 biomass facilities with expiring EPAs. The Armstrong Co-Gen Facility and NWE 8 Williams Lake Facility have historically provided reliable and steady generation 9 pursuant to their respective EPAs. The purpose of the Extension Agreements is 10 to enable these projects to continue operations and to preserve for BC Hydro 11 the option to enter into a longer-term cost-effective EPA to serve future needs 12 and avoid less cost-effective alternatives. In the absence of the Extension 13 Agreements, there is a risk these facilities will no longer be available in the 14 future; and 15  These short-term extensions are a bridging mechanism and during the 16 extension period the Biomass Facilities continue to provide energy and capacity 17 from clean or renewable resources, as well as contribute to the reliability of our 18 system. 19 The Extension Agreements contain a condition requiring BCUC acceptance by a 20 certain date. Under the NWE Extension Agreement the BCUC acceptance date is 21 June 27, 2018; the Tolko Armstrong Extension Agreement originally included 22 May 16, 2018 as the BCUC acceptance date, but this date has been extended, in 23 accordance with the terms of the agreement, to June 27, 2018. BC Hydro 24 respectfully requests that any review process be completed within a timeframe that 25 accommodates the deadlines. 26 A public version of this Filing is being provided to registered interveners who 27 participated in BC Hydro’s most recent Revenue Requirement Application. Armstrong Wood Waste Cogeneration Plant and NWE Williams Lake Wood Waste Electricity Purchase Agreement Extension Agreements Page 4