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BIOENERGY PHASE 2 CALLREQUEST FOR PROPOSALS

Report on the RFP Process

February 10, 2012

FOR GENERATIONS

British Columbia Hydro and Power Authority (BC Hydro) prepared this document (the Report) to describe the Bioenergy

Phase 2 Call Request for Proposals (RFP) process and the award of four Electricity Purchase Agreements (EPAs) with a

volume of 754 Gigawatt hours (GWh) per year of firm energy pursuant to the Bioenergy Phase 2 Call RFP.

Information and documents relating to the Bioenergy Phase 2 Call RFP may be found on BC Hydro's website at:

.

BC Hydro believes in the importance of transparency. However, BC Hydro must at the same time treat as confidential

any information which if disclosed could reasonably be expected to result in significant harm or prejudice to a

proponent's competitive position or undue material financial loss or gain to a person. In this Report, BC Hydro has

provided a range and weighted-average levelized Adjusted Firm Energy Prices (AFEPs) for the awarded EPAs. This

information is provided without attribution.

www.bchydro.com/bioenergyphase2call

Note on Price Disclosure

PURPOSE OF REPORT

Bioenergy Phase 2 Call Request for Proposals - Report on the RFP Processi

http://www.bchydro.com/bioenergyphase2call

CONTENTS

Bioenergy Phase 2 Call Request for Proposals - Report on the RFP Processii

Purpose of Report ................................................................................................................................................................... i

Note on Price Disclosure........................................................................................................................................................ i

1. Executive Summary ............................................................................................................................................................ 1

RFP Implementation and Evaluation ..................................................................................................................................... 1

Cost-Effectiveness ................................................................................................................................................................ 1

2. Background ......................................................................................................................................................................... 2

BC Energy Plan .................................................................................................................................................................... 2

Bioenergy Strategy ............................................................................................................................................................... 2

Clean Energy Act .................................................................................................................................................................. 2

3. Call Implementation and Evaluation ................................................................................................................................. 3

a) Overview of the Bioenergy Phase 2 Call Process ............................................................................................................. 3

b) RFP Process ..................................................................................................................................................................... 3

c) RFP Overview and Key Features ...................................................................................................................................... 4

Eligibility ........................................................................................................................................................................... 4

Maximum Adjusted Price ................................................................................................................................................. 4

Interconnection Studies ................................................................................................................................................... 4

Key EPA Terms and Conditions ...................................................................................................................................... 5

d) RFP Schedule ................................................................................................................................................................... 5

e) Proposal Submissions ...................................................................................................................................................... 5

f) Risk Assessment ............................................................................................................................................................... 6

Process ............................................................................................................................................................................ 6

Results ............................................................................................................................................................................. 6

g) Variations Review ............................................................................................................................................................. 6

h) Quantitative Evaluation ..................................................................................................................................................... 7

Step 1: Levelizing the FEPs ............................................................................................................................................. 7

Step 2: Price Adjustments ................................................................................................................................................ 7

i) Selection of Preferred Proponents ..................................................................................................................................... 8

j) Discussions and Alternate Proposals ................................................................................................................................. 8

k) Adequacy of First Nations Consultation ............................................................................................................................ 8

First Nations Identification ................................................................................................................................................ 8

Potential Project Impacts on First Nations Interests ........................................................................................................ 9

l) Final Portfolio Selection ..................................................................................................................................................... 9

m) Summary of RFP Proposals ............................................................................................................................................ 9

n) Fairness Advisor’s Report ............................................................................................................................................... 10

4. Products Being Acquired ................................................................................................................................................. 11

Hourly Firm Energy ............................................................................................................................................................. 11

Non-Firm Energy ................................................................................................................................................................. 11

Environmental Attributes ..................................................................................................................................................... 11

5. Cost-Effectiveness ........................................................................................................................................................... 13

a) Competitive RFP Process .............................................................................................................................................. 13

b) Comparison to Other BC Hydro Calls ............................................................................................................................ 13

Bioenergy Call Phase 1 RFP ......................................................................................................................................... 14

Clean Power Call RFP ................................................................................................................................................... 14

c) Comparison to Other Jurisdictions ................................................................................................................................. 14

Appendix A – Summary Listing of Bioenergy Phase 2 Call RFP EPA Awards ............................................................... 15

Appendix B – Fairness Advisor’s Report on BC Hydro Bioenergy Phase 2 Call RFP .................................................... 16

Bioenergy Phase 2 Call Request for Proposals - Report on the RFP Process1

The Bioenergy Phase 2 Call was issued on May 31,

2010 and was concluded in August 2011 when

BC Hydro announced the selection of four projects for

EPA awards. The Call is consistent with government

energy policy and legislation, namely the 2007 BC

Energy Plan, the 2008 BC Bioenergy Strategy and the

Clean Energy Act.

Pursuant to the Bioenergy Phase 2 Call, BC Hydro is

acquiring three products – hourly firm energy, non-firm

energy and Environmental Attributes. The energy being

acquired constitutes Clean or Renewable Biomass

Energy as defined in the RFP.

RFP Implementation and Evaluation

The Bioenergy Phase 2 Call employed a RFP process.

The RFP process was modified from previous

acquisition processes in order to reduce costs for

unsuccessful proponents.

By the October 28, 2010 deadline, BC Hydro received

Bioenergy Phase 2 RFP proposals for 13 projects from

ten proponents representing over 3,300 GWh/year of

firm energy. Following the receipt of proposals,

BC Hydro undertook a comprehensive review and

evaluation. In January 2011, BC Hydro selected eight

projects (representing approximately 1,600 GWh/year

of new supply) from five preferred proponents to

proceed to negotiations and interconnection feasibility

studies.

Based on the outcome of the review and evaluation

process, four projects representing 754 GWh/year of

firm energy were selected for EPA awards. The

decision to offer EPAs to these four projects was based

on the final EPA terms and conditions, including the

prices offered by the proponents, the adequacy of First

Nations consultation, and BC Hydro's risk assessment

of the proposals received.

In its decision making for cost-effective EPA awards,

BC Hydro used the levelized final Adjusted Firm Energy

Price (AFEP) since it places all projects on a level

footing by adjusting for varying terms and escalation

1. EXECUTIVE SUMMARY

factors and a common delivery point (i.e., Lower

Mainland). The levelized AFEP (in January $2010) for

the projects selected for EPA award ranged from $112

to $121 per MWh with a weighted-average AFEP of

$115/MWh.

In his report, the Fairness Advisor concluded that “the

procurement process for the Bioenergy Phase 2 Call

RFP to the point of recommendation of the preferred

proponents and the awarding of EPAs has, in my

opinion, been conducted in an exemplary manner

without any unresolved fairness issues”.

Cost-Effectiveness

The cost-effectiveness of the awarded EPAs for the

Bioenergy Phase 2 RFP is demonstrated by the

competitive nature of the RFP process. The volume of

energy being acquired (754 GWh/year) under the RFP

represents less than 25 per cent of the total energy

offered in the original proposal submissions.

The cost-effectiveness is also demonstrated by

comparing the RFP results to other BC Hydro calls.

The weighted-average AFEP of $115/MWh for the four

awarded EPAs under the Bioenergy Phase 2 RFP is

comparable to the $116/MWh price for the Bioenergy

Phase 1 RFP projects. Furthermore, the weighted-

average AFEP for the Bioenergy Phase 2 RFP is lower

than that for the Clean Power Call which was

completed in mid-2010.

The Bioenergy Phase 2 RFP awards are also

comparable to recent Hydro-Quebec awards for

biomass and wind projects.


2. BACKGROUND

The Bioenergy Phase 2 RFP is consistent with

government energy policy and legislation, namely the

2007 BC Energy Plan, the 2008 BC Bioenergy Strategy

and the Clean Energy Act.

BC Energy Plan

The BC Energy Plan was released by the Province on

February 27, 2007. The Bioenergy Phase 2 RFP aligns

with Policy Action No. 31 of the 2007 Energy Plan,

which indicates that BC Hydro will issue “a call for

proposals for electricity from sawmill residues, logging

debris and beetle-killed timber to help mitigate the

impacts from the provincial mountain pine beetle

infestation”.

Other 2007 BC Energy Plan policy actions relevant to

the Bioenergy Phase 2 RFP are:

= – ensure self-sufficiency to

meet electricity needs by 2016;

= Policy Action No. 21 – ensure clean or renewable

electricity generation continues to account for at 1least 90 per cent of total generation; and

= Policy Action No. 30 – implement a provincial

Bioenergy Strategy which builds upon British

Columbia's natural bioenergy resource advantages.

Bioenergy Strategy

In January 2008, the Province released the BC

Bioenergy Strategy, as directed in the 2007 BC Energy

Plan. The BC Bioenergy Strategy called for the

proposed bioenergy call to proceed in two phases –

Phase 1 for projects that could proceed with existing

tenure, and Phase 2 for projects that might require new

bioenergy licenses to proceed. Changes to the Forest

Act, allowing projects that received EPAs to apply for

tenure, were made prior to the launch of the Bioenergy

Phase 2 RFP.

In addition to the directives in the BC Bioenergy

Strategy and changes to legislation prior to call

Policy Action No.10

issuance, the provincial government provided direction

to BC Hydro regarding several key design aspects of

the Bioenergy Phase 2 RFP, including the following:

1. Government identified six “Designated Areas” for

focus that had opportunities for new tenure award

for bioenergy plants. However, projects from across

the province were to be eligible.

2. Government asked BC Hydro to impose a

maximum RFP ceiling price of $150/MWh

(including adjustments for transmission costs and

system losses).

3. All clean and renewable biomass would be eligible

as fuel sources. In contrast, only forest-based

biomass was eligible as a fuel source for the

Bioenergy Phase 1 RFP.

4. Proponents were to assume all biomass fuel price

risk, with no transfer of such risk to BC Hydro.

Clean Energy Act

The Clean Energy Act, which was brought into force on

June 3, 2010, contains several provisions which

reinforce the 2007 BC Energy Plan, including British

Columbia's energy objectives of achieving electricity

self-sufficiency and generating at least 93 per cent of

the electricity in B.C. from clean or renewable

resources. The Bioenergy Phase 2 RFP aligns with

both of these energy objectives. In addition, the Clean

Energy Act exempts persons who enter into energy

supply contracts (e.g., EPAs) related to the Bioenergy

Phase 2 RFP for up to 1,000 GWh/year of electricity

from section 71 of the Utilities Commission Act with

respect to the energy supply contracts.

1 Pursuant to the Clean Energy Act, S.B.C. 2010 c.22, section 2, the legislated clean, renewable electricity generation target is now at least 93 per cent.


3. CALL IMPLEMENTATION AND EVALUATION

a) Overview of the Bioenergy Phase 2 Call Process

The Bioenergy Phase 2 Call employed a RFP process.

Following the receipt of proposals, BC Hydro undertook

a comprehensive review and evaluation based on

criteria described in the RFP document. Once this

review and evaluation was complete, BC Hydro

selected a number of preferred proponents to proceed

to the negotiation stage, which ended with the selection

of projects for the award of EPAs.

The process was modified from previous acquisition

processes (e.g., Clean Power Call and Bioenergy

Phase 1 Call) in order to

reduce costs for unsuccessful

proponents. The evaluation

methodology employed was

also largely consistent with the

recommendations of the

Energy Procurement Review

undertaken by Merrimack

Energy Group, Inc. that was

released in September 2011.

b) RFP Process

The Bioenergy Phase 2 RFP

was issued on May 31, 2010.

Each proponent intending to

submit a proposal was required

to register for the RFP. Prior to

the proposal submission

deadline, registered proponents

were given the opportunity to

discuss their projects in-person

with BC Hydro to gain a better

understanding of the RFP

process and requirements in

the context of their individual

projects.

The RFP process allowed

some flexibility for proponents

to work with BC Hydro to come

up with cost-effective EPA

terms and conditions. In addition to the base proposal,

proponents had the option of submitting an alternate

proposal containing variations to the Specimen EPA.

In September 2010, a Fairness Advisor (John Singleton

of Singleton Urquhart LLP) was retained to monitor the

execution of the RFP process for the purpose of

assessing whether the process of dealing with

proposals and proponents, selecting preferred

proponents and awarding EPAs was conducted by

BC Hydro fairly and in accordance with the RFP.

A process for handling and evaluating submissions was

established prior to bid submission (Figure 3-1). The

Figure 3-1: Bioenergy Phase 2 Call RFP Evaluation Process - Overview

ProposalReceipt

Disclosure ReviewConformity Review

Risk Assessment

QuantitativeEvaluation

Variations Review

Selection of Preferred

Proponents

Negotiation Stage

Final Evaluation

Fair

nes

sA

dvis

or

Eligibility Review

Other Evaluation Criteria

Initial Review

Preferred Proponents Only

Selection of Projects for EPA

Award


evaluation criteria for the process were set out in

section 12.4 of the RFP.

The RFP evaluation process began soon after the

October 28, 2010 deadline for submitting proposals.

BC Hydro received 13 proposals by the RFP deadline.

In January 2011, BC Hydro selected five preferred

proponents, representing eight projects, to continue to

the negotiation stage. BC Hydro met with each

preferred proponent in February/March 2011 to discuss

their proposal(s). The RFP process concluded on

August 4, 2011 with BC Hydro's announcement that

four projects had been selected for the award of EPAs.

c) RFP Overview and Key Features

BC Hydro established a number of eligibility

requirements for participation in the RFP. Projects had

to be “greenfield” developments, located in B.C. and

connected (directly or indirectly) to BC Hydro's

integrated system, have a minimum capacity of 5

megawatts (MW), and generate Clean or Renewable

Biomass Energy as defined in the RFP. In addition,

BC Hydro would not consider projects that were:

= the subject of an existing EPA with BC Hydro;

= under consideration, or the subject of an electricity

purchase or other agreement, in BC Hydro's

Community-Based Biomass Power Call Request

for Qualifications or the Integrated Power Offer or

Standing Offer Program; or

= the subject of an application, or approved funding,

under Canada's Pulp and Paper Green

Transformation Program.

The RFP stated that BC Hydro would not award EPAs

for projects with a final AFEP above the $150/MWh

ceiling price.

For the Bioenergy Phase 2 RFP, BC Hydro

endeavoured to address issues that had arisen in

recent prior calls related to the cost and complexity of

the interconnection studies required for the evaluation

Eligibility

Maximum Adjusted Price

Interconnection Studies

process. The interconnection studies undertaken by

BC Hydro (previously British Columbia Transmission

Corporation) cost approximately $30,000 per project, in

addition to the engineering costs incurred by the

proponent to provide the required interconnection

information. Furthermore, BC Hydro's recent calls

demonstrated that bioenergy projects in general have

lower interconnection costs than other renewable

projects as they are often located close to an existing

industrial facility and thus adjacent to the integrated

electricity grid.

In the Bioenergy Phase 2 RFP, the method of

conducting interconnection studies was modified to a

two-part process. First, BC Hydro commissioned a

preliminary screening process for the six designated

areas and posted the results to the RFP website prior

to the proposal submission date.

For all registered projects not located in designated

areas, separate preliminary screening process

assessments were undertaken (at BC Hydro's

expense). The results of the screening process

assessments provided proponents with a high-level

estimate of the transmission losses to the Lower

Mainland and the potential Network Upgrades for a

project of a given size.

Proponents could use the screening process data to

calculate a levelized preliminary AFEP for their project,

using the price spreadsheet provided by BC Hydro with

the RFP documents. However, proponents were

cautioned that the screening process data was

preliminary in nature, and a more detailed feasibility

study that considered the specific scope, location, and

interconnection configuration for each project would be

required to obtain interconnection cost and

transmission loss estimates with a higher degree of

accuracy.

For the second part of the interconnection process, the

five preferred proponents were required to carry out a

more detailed Interconnection Feasibility Study at their

own cost. The results of these more detailed studies

were included in the calculation of the final AFEP for

each project, which BC Hydro used to determine the

final portfolio.

Bioenergy Phase 2 Call Request for Proposals - Report on the RFP Process 5

Key EPA Terms and Conditions

In developing the Specimen EPA for the Bioenergy

Phase 2 RFP, BC Hydro relied on the form of specimen

electricity purchase agreement developed for the

Bioenergy Phase 1 Call and the form developed for the

Clean Power Call. The Specimen EPA was modified to

incorporate prior contractual enhancements and to

address issues specific to the Bioenergy Phase 2 RFP.

A copy of the Specimen EPA can be found on

BC Hydro's web site.

Some of the key EPA terms and conditions of the

Bioenergy Phase 2 RFP are summarized below.

BC Hydro defines “firm energy” as a

volume of energy with a contractually

assured delivery, which a proponent

must commit to delivering over a

specified period. Proponents were

required to include a commitment to

“hourly firm energy” deliveries with

their commercial proposal; “hourly firm

energy” refers to the volume of energy

that a proponent commits to deliver in

each hour. Additional energy could

also be delivered without a contractual

delivery commitment as “non-firm

energy” as set out in the RFP.

Proponents could propose a guaranteed Commercial

Operation Date (COD) between November 1, 2012 and

November 1, 2016.

Proponents could propose an EPA term ranging from

10 to 30 years, commencing from the COD. The term

length range was established by BC Hydro based on

permitting considerations and the typical life of

bioenergy projects.

As provided under the Specimen EPA, after the first

anniversary of COD, Liquidated Damages (LDs) are

payable to BC Hydro for firm energy delivery shortfalls.

Product

Commercial Operation Date

Term

Liquidated Damages

The amount of LDs is the greater of market price less

the firm energy price (adjusted for delivery to the Lower

Mainland) and $5.20 (adjusted annually for Consumer

Price Index (CPI) from January 1, 2010) for each MWh

of delivery shortfall. The total LD amount for energy

delivery shortfalls in any given year is limited to 200 per

cent of the performance security applicable for that

year.

d) RFP Schedule

At the time of issuing the RFP, BC Hydro set out the

following key milestones:

BC Hydro largely met the schedule as originally set out

in the RFP. The RFP completion date was extended to

July 29, 2011 as a result of the B.C. government's

review of BC Hydro (which began in April 2011 and

concluded in June 2011).

e) Proposal Submissions

By the proposal submission deadline, BC Hydro

received Bioenergy Phase 2 RFP proposals for 13

projects from ten proponents representing over 3,300

GWh/year of firm energy. Prior to the short-listing

process wherein BC Hydro selected preferred

proponents, one proponent withdrew its RFP proposal.

Following the receipt of proposals, BC Hydro

conducted conformity, eligibility and disclosure reviews.

No proposals were disqualified based on these

reviews.

Event/Activity Scheduled Date(s)

RFP Issue May 31, 2010

Posting of Additional RFP Documents June 7, 2010 to June 25, 2010

Registration Deadline July 15, 2010

Pre-Submission Meetings September 13, 2010 to October 1, 2010

Proposal Submission Deadline October 28, 2010

Selection of Preferred Proponents Mid-January, 2011

Negotiation Phase February 2011 to April 2011

RFP Completion April 2011

Table 3-1: Summary of Events and Activities


f) Risk Assessment

BC Hydro conducted a risk assessment to assess the

development and delivery risks associated with each

proposal. Through this process, BC Hydro assessed if

a project was likely to be developed as proposed, and

whether the project would be able to deliver the

stipulated firm energy over the contract term.

Each proposal was reviewed by the four separate risk

assessment teams, which was comprised of BC Hydro

staff and external consultants with relevant expertise.

The fuel plan evaluation team included external

consultants and representatives from the BC Ministry of

Forests, Lands and Natural Resource Operations.

Each team focused on reviewing one of four discrete

risk areas being assessed and confined their

assessment to the relevant portions of the proposals.

None of the risk assessment teams had access to the

bid price information contained in the commercial

proposals.

The risk assessment teams were tasked with

evaluating the following aspects of all proposals:

1. Finance: This team evaluated the financial

strength of proponents and their partners in relation

to the capital required to develop the projects. This

team also assessed whether there was a risk of

projects not being developed due to a lack of, or

inability to acquire, debt or equity financing.

2. Technical/Permitting: This team assessed the

proposed project development, including technical

aspects. Areas of assessment included: the

feasibility of the construction schedule and the

operational plans proposed by proponents; a

determination of whether the necessary permits

and approvals had been identified; the

reasonableness of the plan and schedule for

obtaining any outstanding permits/approvals; and

the risk of not receiving these permits and

approvals.

3. First Nations: This team reviewed the

reasonableness and adequacy of First Nations

consultations for each project.

4. Fuel Plan: This team evaluated the availability of

supply and the long-term viability (including tenure

availability) of the proposed fuel and source, the

status and adequacy of plans and commitments to

secure the required supply of biomass, the

potential impact on existing users, and the

reasonableness of the fuel sourcing cost

information.

For their respective areas of focus, each risk

assessment team developed a risk rating for each

project on a scale of low, medium or high. Ratings were

based on criteria defined by each team prior to

receiving proposals. In addition to the risk ratings, the

risk assessment teams provided a brief summary of the

major risks for each project. This review was completed

in December 2010 and team members remained

available for expert advice regarding questions that

subsequently arose during the negotiation stage.

Upon completion of the individual risk assessment for

the four risk categories described above, the results

were summarized and used to support informed

decision-making related to selection of preferred

proponents. The risk assessment was not intended to

be used as a pure pass or fail decision, although

BC Hydro retained the right to remove any proposal

from consideration on the basis of excessive risk. No

proponents were removed from consideration as a

result of the risk assessment.

g) Variations Review

As part of the package of RFP documents, BC Hydro

provided a Specimen EPA containing its preferred

terms and conditions. The Specimen EPA was based

on a project proposed by a single corporation, offering

hourly firm energy with a direct interconnection to the

transmission system. Proposals submitted in

accordance with these terms were referred to as “base”

proposals. While proponents could submit alternate

proposals, proponents were requested to submit a

“base” proposal that contained no proposed variations

to the Specimen EPA which would materially change

the benefit or risk of the Specimen EPA.

Process

Results


To accommodate potential unique situations not

contemplated in the Specimen EPA or where

proponents could offer additional value, BC Hydro

allowed proponents to submit alternate proposals using

a format provided in the RFP proposal submission

guide. For alternate proposals, proponents were

requested to submit a blacklined version of the

Specimen EPA along with a brief description of the

alternate proposal and any associated modification of

the commercial proposal.

BC Hydro assessed all alternate proposals received

from proponents. In some situations, the submitted

alternate proposals were modified and/or additional

value variations were offered by proponents in the

course of post-submission discussions with BC Hydro.

For those alternate proposals that were acceptable to

BC Hydro, the EPAs were modified accordingly.

h) Quantitative Evaluation

The Bioenergy Phase 2 RFP permitted proponents to

select a number of different options (e.g., product and

pricing attributes) when submitting their proposals. To

fairly compare proposals with different attributes,

BC Hydro calculated a preliminary AFEP for each

proposal.

The first step in computing the preliminary AFEP was to

levelize the offered Firm Energy Price (FEP), which

took into account the pricing attributes proposed by

each proponent. The second step was to adjust each

project's levelized FEP for product attributes, estimated

Network Upgrade costs, and project location relative to

the Lower Mainland. The screening process

interconnection assessment data was used in

calculating the preliminary AFEP.

To compute the levelized FEP, BC Hydro divided the

present value (PV) of the firm energy purchases for

each proposal, based on the proponent's selected

options (e.g., COD, contract term, escalation rate), by

the PV of firm energy deliveries over the term of the

EPA. To calculate the PV of firm energy purchases,

BC Hydro used a nominal discount rate of 8.0 per cent

and a real discount rate of 5.8 per cent (assuming an

inflation rate of 2.1 per cent).

Step 1: Levelizing the FEPs

Step 2: Price Adjustments

For base proposals, the levelized FEP was adjusted to

account for differences in product attributes and project

location. Adjustments were made for hourly firm energy,

Network Upgrade (NU) costs, Cost of Incremental Firm

Transmission (CIFT) and energy losses, as follows:

= Hourly Firm: Although all projects were required to

submit a base proposal with hourly firm energy, the

hourly firm energy adjuster was retained to allow

comparison to previous calls and to allow

evaluation of potential alternate proposals that

modified the energy delivery obligations. An

adjuster (expressed in $/MWh) was deducted from

the levelized FEP for proponents that committed to

deliver hourly firm energy. The magnitude of the

adjuster depended on the proponent's profile of on-

peak hourly firm energy. For a project with a “flat”

hourly firm energy profile, the adjuster was

approximately $4.05/MWh.

= NU: The NU adjustment was based on a high-

level screening process estimate of the costs that

would be borne by BC Hydro to interconnect each

project to the grid. The applicable NU amounts

were multiplied by 150 per cent and converted into

a $/MWh adjustment and then added to the

levelized FEP for that project.

= CIFT: The CIFT adjustment was based on a report

entitled “Bulk Transmission System Cost of

Incremental Firm Transmission for BC Hydro's

2008 LTAP Base Plan and Contingency Resource

Plans CRP1 and CRP2” dated January 15, 2009.

The CIFT provides a general indication of the long-

term unit cost of bulk transmission system

reinforcement from region to region. The CIFT for

non-adjacent regions was determined by summing

the region to region costs. To calculate the CIFT

adjustment for each project, CIFT costs (expressed

in $k/MW-year) for the largest incremental energy 2flows in the F2010 Stage were used. The

cumulative CIFT costs for each project were

converted into a $/MWh adjustment and then

added to the levelized FEP for that project.

2 F2010 Stage refers to the facilities that are expected to be in service in F2010 and later.


=

carried out to provide a high-level estimate of

transmission losses associated with delivering the

energy from the general location of each project to

the Lower Mainland on a stand-alone basis. These

losses were converted into a $/MWh adjustment

and added to the levelized FEP for the project.

The result of the above adjustments is a preliminary

levelized AFEP on a stand-alone basis for a common

product (i.e., hourly firm energy delivered to the Lower

Mainland).

i) Selection of Preferred Proponents

Following the completion of the preliminary evaluation,

on January 21, 2011 BC Hydro selected eight projects

(representing 1,639 GWh/year of new supply) from five

preferred proponents to proceed to negotiations and

interconnection feasibility studies.

j) Discussions and Alternate Proposals

During February and March 2011, BC Hydro met with

all preferred proponents to discuss their base and

alternate proposals in order to more fully understand

their projects and proposed variations. In addition,

proponents were asked to submit clarifications

regarding certain aspects of their proposals.

Furthermore, BC Hydro explored ways to enhance the

value of the proposals to ratepayers, through

modification of the commercial terms or development of

modified proposals.

In early April 2011, preferred proponents were given an

opportunity to submit improved commercial proposals,

including alternate proposals. The final AFEP was

calculated for each proposal using a similar process to

the calculation of the preliminary AFEP, including

adjustments for hourly firm energy, NU costs, CIFT and

losses.

The primary differences in the calculation of the final

AFEP compared to the preliminary AFEP were as

follows:

Losses: A screening process assessment was =

terms offered by preferred proponents in April 2011.

In contrast, the preliminary AFEP was based on the

original commercial terms submitted by all

proponents with their bids in October 2010;

= The NU and losses adjustments in the final AFEP

were based on the results of the interconnection

feasibility studies, rather than the interconnection

screening process data used in the preliminary

AFEP; and

= The final AFEP included adjustments for alternate

proposals offered by the preferred proponents

which were acceptable to BC Hydro, whereas the

preliminary AFEP was based only on the “base”

proposal.

BC Hydro used the final AFEP for each of the eight

projects to determine the final portfolio of cost-effective

projects that were selected for EPA awards.

k) Adequacy of First Nations Consultation

Prior to awarding the EPAs, BC Hydro reviewed the

First Nations consultation records provided by the

Bioenergy Phase 2 RFP proponents to determine if

consultation had been reasonable and adequate to the

date of contract award. BC Hydro requested

information and documentation from proponents

regarding the identification of potentially impacted First

Nations, potential project impacts on asserted

aboriginal rights and title as well as consultation logs

and summaries of meetings.

Requested information that identified how proponents

determined which First Nations to consult with in

relation to their projects included:

= A statement of how proponents determined which

First Nations to consult and a list of such First

Nations (including key contact persons); and

= Copies of directions from other Crown agencies

indicating the specific First Nations to be consulted

with as well as supporting documentation such as

letters from First Nations or tribal councils.

The final AFEP was based on the final commercial

First Nations Identification


Potential Project Impacts on First Nations

Interests

To assess the degree of the potential project impacts

on asserted aboriginal rights and title, BC Hydro

considered:

=

current stage of the project, such as the nature of

information shared with First Nations about the

project, the opportunities for First Nations to

identify potential impacts, when consultation

began, how frequently consultation occurred and

plans for future consultations;

= Detailed information on each potential impact to

any First Nation's asserted aboriginal rights and

title that had been identified, either by the First

Nation or through studies related to the project

(such as archaeological studies or Traditional Use

Studies);

= Information on how

the severity of the

potential impact was

assessed and

whether First Nations

were involved in that

assessment;

= Mitigation measures

that had been

identified by the

proponent and

whether those

mitigation measures

addressed First

Nations concerns;

= Identification of any concerns raised by First

Nations in the permitting process in respect of

permits not yet issued by Crown agencies; and

= Identification of all permits, licenses, tenures and

approvals that had been rejected due to lack of

adequate First Nations consultation.

For each of the four projects that were awarded EPAs,

BC Hydro determined that the consultation processes

to the date of the EPA award were reasonable and

adequate.

Information on the level of consultation to the

l) Final Portfolio Selection

Based on the outcome of the review and evaluation

process described above, four projects representing

754 GWh/year of firm energy were selected for EPA

awards. A detailed description of the projects that were

awarded EPAs is contained in Appendix A.

The decision to offer EPAs to these four projects was

based on the final EPA terms and conditions, including

the prices offered by the proponents, the adequacy of

First Nations consultation, and the risk assessments.

m) Summary of RFP Proposals

Table 3-2 summarizes the treatment of the RFP

proposals, starting with the registration of proponents in

July 2010 and ending with the EPA awards in August

2011.

BC Hydro used the levelized final AFEP in its contract

award decisions since it places all projects on a level

footing by adjusting for varying terms and escalation

factors and a common delivery point (i.e., Lower

Mainland).

The levelized final AFEP for the projects selected

ranged from $112 to $121 per MWh with a weighted-

average AFEP of $115/MWh (January $2010).

The levelized final AFEP for the four short-listed

projects that were not selected for the award of an EPA

ranged from $126 to $162 per MWh.

Table 3-2: Summary of RFP Proposals

Event Date Proposals Firm Energy (GWh/year)

RFP Registrations July 2010 19 ~3,500 to 5,000

Proposals Submitted October 2010 13 3,321

· Proposals withdrawn prior to short-listing · Proposals not short-listed

(1) (4)

(1,682)

Selection of Preferred Proponents January 2011 8 1,639

Awarded EPAs August 2011 4 754


The levelized final AFEP for one of the unsuccessful

projects award was above the $150/MWh, RFP ceiling

price, because the results of its final interconnection

study identified higher NU costs and losses than

estimated in the screening process assessment.

n) Fairness Advisor's Report

The Fairness Advisor's report regarding the Bioenergy

Phase 2 RFP process is contained in Appendix B. The

Fairness Advisor concluded that “… the procurement

process for the Bioenergy Phase 2 Call RFP to the

point of recommendation of the preferred proponents

and the awarding of EPAs has, in my opinion, been

conducted in an exemplary manner without any

unresolved fairness issues”.


4. PRODUCTS BEING ACQUIRED

Pursuant to the Bioenergy Phase 2 RFP, BC Hydro is

acquiring three products – hourly firm energy, non-firm

energy and Environmental Attributes.

Hourly Firm Energy

Proponents were required to provide a base proposal

with “hourly firm energy” deliveries. However,

proponents could modify the delivery obligation as an

alternate proposal (such as offering seasonal or

monthly firm energy). All four of the projects that were

awarded EPAs have an “hourly firm energy” delivery

commitment.

BC Hydro pays for the firm energy that is received at

the price in the EPA for that year multiplied by a time-

of-delivery factor to account for the value of energy to

BC Hydro at different time periods in a month and for

different months in the year. The 3 X 12 table (three

time periods per month and 12 months per year)

reflects time-of-delivery factors that are common to all

EPAs.

The super-peak period is from 16:00 to 20:00, and the

peak period is from 6:00 to 16:00 and from 20:00 to

22:00 from Monday to Saturday. The off-peak period is

from 22:00 to 6:00 from Monday to Saturday and

includes all hours on Sundays and B.C. statutory

holidays.

Non-Firm Energy

In addition to the firm energy being acquired under the

Bioenergy Phase 2 RFP, BC Hydro will be purchasing

non-firm energy. For the selected projects, non-firm

energy will generally represent less than five per cent

of the total energy deliveries.

Payment for any non-firm energy delivered is based on

two pricing options provided to proponents. At the time

of proposal submission, proponents elected to be paid

for their non-firm energy deliveries based on either a

fixed price schedule (Option A) reflecting BC Hydro's

forecast of market electricity prices or a variable price

(Option B) based on actual average mid-C spot market

prices for non-firm energy.

Environmental Attributes

The other product being acquired under the Bioenergy

Phase 2 RFP is “Environmental Attributes” which are

broadly defined in

Appendix 1 of the Specimen

EPA to include all rights and

benefits of any kind

associated with, or arising

from, a project's “greenness”,

including any green

marketing attributes, offsets,

credits or other instruments

or rights arising from the

actual or assumed

displacement by the project

of offsite emissions, as well

as any offsets, credits,

allowances or other

tradeable rights arising from

on-site emission reductions.

Table 4-1: Time of Delivery Factors

Month Super-Peak [%]

Peak [%]

Off-Peak [%]

January 141 122 105

February 124 113 101

March 124 112 99

April 104 95 85

May 90 82 70

June 87 81 69

July 105 96 79

August 110 101 86

September 116 107 91

October 127 112 93

November 129 112 99

December 142 120 104


4. PRODUCTS BEING ACQUIRED

There are several reasons for BC Hydro to acquire the

Environmental Attributes from proponents as part of the

Bioenergy Phase 2 RFP:

· BC Hydro is not acquiring clean or renewable

electricity if it purchases power without the

Environmental Attributes. Such electricity 3would be considered as “null” electricity in

most jurisdictions since it no longer has any

associated environmental benefits.

· There is a potential greenhouse gas (GHG)

liability from acquiring null electricity stripped of

the Environmental Attributes because null

electricity may have some GHG intensity,

whereas clean electricity has no or very low

GHG intensity.

· The acquisition of Environmental Attributes as

part of a clean, renewable power acquisition

process is consistent with the procurement

processes of other utilities. With the exception

of United States jurisdictions issuing standard

offer-like acquisition processes under the

Public Utilities Regulatory Policies Act of 1978,

Environmental Attributes are typically 4transferred to the purchasing utility.

· Acquisition of the Environmental Attributes

permits BC Hydro to manage risk in the event

that at some point a Renewable Portfolio

Standard is set for BC Hydro.

· Environmental Attributes acquired through the

Bioenergy Phase 2 RFP may be marketed to

buyers in B.C., the Western Electricity

Coordinating Council (WECC) region and

other markets for the benefit of BC Hydro's

ratepayers.

3 See, for example, the Western Climate Initiative's position set out in “Electricity Subcommittee Discussion Paper on Renewable Portfolio Standards, Renewable Energy Credits and GHG Accounting” (December 2008), page 1.

4 See, for example, Ontario's Feed-In Tariff Program, enacted under the Ontario Green Energy and Green Economy Act, 2009, where IPPs must transfer environmental attributes arising from projects to the purchasing entity, the Ontario Power Authority.


5. COST-EFFECTIVENESS

The cost-effectiveness of the awarded EPAs for the

Bioenergy Phase 2 RFP is demonstrated by the

following three benchmarks:

Competitive nature of the RFP process;

Comparison to other recent BC Hydro power calls;

and

Comparison to energy prices in other North

American jurisdictions.

a) Competitive RFP Process

BC Hydro relies on the competitive nature of the

Bioenergy Phase 2 RFP process as the primary

support for its position that the EPAs are cost-effective.

The BCUC has previously found that an important

determination of cost-effectiveness is whether or not

the particular power acquisition process awards were

the outcome of a competitive process that yielded a 5cost-effective result.

BC Hydro notes that the volume of energy being

acquired (754 GWh/year) under the Bioenergy Phase 2

RFP represents less than 25 per cent of the total

energy offered in the original proposal submissions.

Additionally, the following facts support BC Hydro's

view that the Bioenergy Phase 2 RFP was a

competitive, fair and transparent process:

= – As described in Section 3 of this

Report, initially BC Hydro received 13 proposals

from ten different proponents, representing more

than 3,300 GWh/year of firm energy. Many of the

=

=

=

Participation

proponents were well-established industrial firms in

B.C. or experienced and qualified IPPs.

= – The RFP offered contract term and

COD flexibility (both initial COD and phased COD).

In addition to the options set out in the RFP

documents, proponents were allowed to submit

alternate proposals that BC Hydro could choose to

accept if such proposals provided value to its

ratepayers. BC Hydro utilized the discretion

inherent in a RFP process to negotiate both price

and value-added alternate proposals with

proponents. In addition, BC Hydro could and did

propose variations to the proposals that increased

their value to BC Hydro and its ratepayers.

= Least Cost – The four awarded EPAs represented

the lowest final AFEPs for the proposals submitted

by the preferred proponents, and were all

considered to be cost-effective, both individually

and on a portfolio basis.

b) Comparison to OtherBC Hydro Calls

In addition to its reliance on the competitiveness and

transparency of the acquisition process, BC Hydro

compared the awarded EPAs to its two most recent call

processes – the Bioenergy Phase 1 RFP and the Clean

Power Call RFP. As shown in Table 5-1 below, these

comparisons further confirm that the Bioenergy Phase

2 RFP EPAs are cost-effective.

RFP Process

5 BCUC Reasons for Decision to Order No. E-1-05 (March 9, 2005), Call for Tenders for Capacity on Vancouver Island and Review of EPA, page 13.

Table 5-1: Comparison to Recent BC Hydro Calls

BC Hydro Call Process

Completion of EPA Awards

Lowest Levelized AFEP

($/MWh)

Highest Levelized AFEP

($/MWh)

Weighted Average

Levelized AFEP ($/MWh)

(All prices adjusted to January 2010 dollars)

Bioenergy Phase 1 RFP December 2008 112 119 116

Clean Power Call RFP July 2010 108 137 127

Bioenergy Phase 2 RFP August 2011 112 121 115


Bioenergy Call Phase 1 RFP

Clean Power Call RFP

The weighted-average AFEP of $115/MWh for the four

awarded EPAs under the Bioenergy Phase 2 RFP is

comparable to the $116/MWh price for the Bioenergy

Phase 1 RFP. Given that all four of the awarded EPAs

are for “greenfield” projects, the price comparison is

particularly favourable given that the majority of the

Bioenergy Phase 1 Call projects were existing industrial

facilities. Further, the prices paid in respect of the four

projects are below the prices offered in respect of the

14 unsuccessful Bioenergy Phase 1 RFP projects,

which ranged from $124/MWh to $412/MWh (January

$2010).

As shown above, the weighted-average AFEP of

$115/MWh for the Bioenergy Phase 2 RFP is lower

than that for the Clean Power Call ($127/MWh) which

was completed in mid-2010.

c) Comparison to Other Jurisdictions

As shown in BC Hydro's report on the Clean Power

Call RFP process (released on August 3, 2010), the

awarded Clean Power Call EPAs were at the lower end

of the energy price range for other North American

jurisdictions and thus were considered to be cost-

effective.

Table 5-2 below provides an updated jurisdictional

comparison where the Bioenergy Phase 2 RFP results

are compared to two recent Hydro-Quebec

procurement processes.

As shown, the energy prices (including transmission

costs) for the awarded Bioenergy Phase 2 RFP

contracts compare favourably with the recent Hydro-

Quebec awards for biomass and wind projects.

Table 5-2: Comparison to Other Renewable Power Acquisition Processes

Utility/Acquisition Process Award Date Award Volume Levelized Energy

Price* (2010$/MWh)

Hydro-Quebec Biomass Cogeneration CFT

December 2009

61 MW $114

Hydro-Quebec Wind CFT for Community and Aboriginal Projects

December 2010

292 MW $136

BC Hydro Bioenergy Phase 2 RFP

August 2011

104 MW $115

* The prices for the Hydro-Quebec awards include transmission costs. For the Bioenergy Phase 2 RFP,

the adjusted levelized price includes interconnection/transmission costs and losses associated with transmitting power to the load center.


APPENDICES

Appendix A

Proponent Name Project Name Location Region Capacity

(MW) Firm Energy (GWh/year)

West Fraser Mills Ltd. Chetwynd Forest

Industries Biomass Project

Chetwynd, B.C. Peace River 12 88

Western Bioenergy Inc. Fort St. James Green Energy

Fort St. James, B.C. North Coast 40 289

West Fraser Mills Ltd. Fraser Lake

Sawmill Biomass Project

Fraser Lake, B.C. North Coast 12 88

Western Bioenergy Inc. Merritt Green

Energy Merritt, B.C.

Kelly Lake Nicola

40 289

Total 104 754

Summary Listing of Bioenergy Phase 2 Call RFP EPA Awards

Appendix B
