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British Columbia Utilities Commission#600 - 900 Howe Street, Box 250Vancouver, B.C.V6Z2N3

Karl E. Gustafson, Q.C.604.691.7427604.893.2351karl.gustafson@mcmillan.ca62422-0003January 20, 2012

Attention: Alanna Gillis, Acting Commission Secretary

Dear SirslMesdames:

Subject: Project No. 3698627 - FortisBC Energy Utilities (FEU) 2012-2013 RevenueRequirements and Natural Gas Rates Application

Pursuant to Commission Order G-5-12 dated January 17,2012, as counsel forEnergy Services Association of Canada ("ESAC"), we file further submissions on behalf ofESAC with respect to the implications of the "correction" to sworn testimony given by the FEUin this proceeding.

Respectfully submitted on behalf ofESAC.

Yours truly,

1JfM4Karl E. Gustafson, Q.C.*

KEG/iabEncl.

*Law Corporation

McMillan LLP I Royal Centre. 1055 W. Georgia St.. Suite 1500. PO Box 11117. Vancouver. Be. Canada V6E 4N7 I t 604.689.911 1 I f 604.6857084

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Vancouver I Calgary I Toronto I Ottawa I Montreal I Hong Kong I mcmillan.ca 5016579.1

C5-7

An Application by FortisBC Energy Utilities (the "FEU") 2012 and 2013 RevenueRequirements and Natural Gas Rates ~ Project No. 3698627Submission by Energy Services Association of Canada ("ESAC") Re: "Correction" ofEvidence by the FortisBC Energy Utilities (the "FEU")

Pursuant to Commission Order G-5-12 dated January 17,2012, we are providing furthersubmissions on behalf ofESAC with respect to the implications ofwhat the FEU hascharacterized in its letter dated January 6, 2012 as a "correction" to sworn testimony givenpreviously by the FEU in this matter. As ESAC noted in its letter dated January 12,2012, notonly does ESAC not object to the Commission having accepted the "correction", but it believesthat the Commission should take particular note of the fact that false testimony was given.

The FEU now admits that certain of the sworn testimony given by Ms. Smith in this matterwas incorrect. In our view the admission that sworn evidence was incorrect or false has seriousimplications on several levels.

It is important to understand the background to the questions that led to Ms. Smith'stestimony. ESAC filed a letter dated April 27, 2011 in which, among other things, it identified aspecific concern as to whether there was sufficient separation between the FEU business unitengaged in the AES business and the persons responsible within the FEU for the appropriate·allocation and use ofEEC funding collected from the FEU's ratepayers. ESAC attempted toexplore that concern in Information Requests filed in the AES Inquiry. In ESAC's IR No.1, Q.15.3, in the AES Inquiry, the FEU was asked, "Would the fact that the TES Group is workingwith the Delta School District on a non-prescriptive project be "flagged" on the Delta SchoolDistrict application for EEC funds". The FEU's answer was an unequivocal, "No". Theresponse went on to state the FEU's EEC staff are primarily concerned simply with ensuring thatapplicants' projects conform to the terms and conditions of the EEC program.

ESAC was not satisfied with the FEU's responses to its Information Requests in the AESInquiry and determined that it would pursue the issue with a further Information Request in thisproceeding. In ESAC's IR No.2, Q. 4.2 in this proceeding, the FEU was asked whether any ofthe FEU's TES staff were permitted to discuss potential EEC funding that may be available forcustomers on the FEU TES projects or if only designated EEC staff had those conversations withcustomers. The response was that "there are different groups of employees that are typicallyinvolved in EEC and thermal energy projects." The answer is of course rather vague, but theclear implication was to suggest that there was a separation between the FEU's TES activitiesand its EEC program.

Frankly, ESAC was not satisfied with the answers given by the FEU to these twoInformation Requests and determined that it would pursue the matter by questioning the EECpanel in this proceeding. It was clear from the thrust ofMr. Gustafson's questions whenexamining the EEC panel on November 14,2011 that it was an important issue as to whetherthere had been any communication between FEU's TES personnel and its EEC personnel withrespect to the Delta School District ("DSD") project. If Ms. Smith was "unaware" of the facts asis now asserted, she ought to have testified that was the case. Instead, her answer was that therehad not been any such communication.

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It is difficult to believe that, in her capacity as Manager of Energy Efficiency andConservation for FortisBC Energy Inc., Ms. Smith would not be aware when giving sworntestimony on November 14,2011 that those communications had taken place. That isparticularly the case given that

1. ESAC had raised the issue in its letter dated April 27, 2011;

2. ESAC had pursued the issue with Information Requests filed in the AES Inquiry and inthis proceeding; and

3. the FEU now admits that such communications were "the normal course of business".

That such communications in fact took place is not at all surprising. What was surprising,to the point of straining credibility, was Ms. Smith's original answer denying suchcommunications and the previous responses to Information Requests that implied that suchcommunications did not occur. In these circumstances, how is it possible that Ms. Smith did notknow these kinds of communications were common in the normal course of business?

It needs to be noted that Ms. Smith was testifying as part ofa panel. Mr. Stout, VicePresident of Energy Solutions and External Relations for the FEU, sat beside her on that paneland did not correct her testimony. Are we to believe that he was equally "unaware" that thesecommunications had taken place or were likely to have taken place in the "normal course ofbusiness"? It seems reasonable to expect that one or both of these senior officers would certainlyhave been aware that these communications were likely to have taken place, particularly since itis now admitted that it was in fact the "normal course of business."

In this respect we refer to Volume 3 of the Transcript ofthe Oral Proceeding. In answer toquestions from Commission Counsel, Mr. Fulton, Mr. Dall'Antonia was quite clear that Mr.Stout was fully familiar with all of the TES personnel and their roles. (Tr, p. 682-3) Yet, whenMs. Smith offered her testimony, Mr. Stout said nothing. By his silence, we submit that heaffirmed her testimony and that his silence is significant.

As noted above, the issue does not begin and end with a single incorrect answer. Thetestimony given by the EEC panel on November 14,2011 is also inconsistent with the FEU'sResponse to ESAC's IR No.1, Q. 15.3, in the AES Inquiry and with ESAC's IR No.2, Q. 4.2 inthis proceeding.

However, the FEU now admit that its EEC staff typically engage in broader communicationsincluding

1. reviewing the requirements of a PSECA energy study;

2. seeking clarification on the project cost details;

3. confirming the final incentive amounts; and

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4. reviewing the final incentive amount in order to clarify how the findings ofthe DeltaSchool District's PSECA energy study impacted the value of the EEC incentive.

This admission makes it even less likely that the EEC panel in this proceeding was"unaware" that communications would have taken place between the FEU's TES staff and itsEEC staff in relation to the DSD project.

In ESAC's submission, the history of this matter which has now culminated in the FEU'sadmission that its evidence was false, at least that certain sworn testimony by Ms. Smith wasincorrect, has serious implications. These events have impact on at least three proceedingscurrently pending before the Commission. They have resulted in delays and additional costs forall participants. They strike at the integrity of the process.

Because the FEU failed to provide a satisfactory answer to the question initially in the AESInquiry, ESAC was forced to pursue the issue by filing a further Information Request in thisproceeding and, when the Response to that Information Request also proved to be unsatisfactory,ESAC was forced to cross examine the EEC panel. Even then, the truth was not revealed.

Why was this admission not forthcoming sooner? Surely, someone at the FEU would haverecognized that the testimony of the EEC panel was false shortly after it was given on November14,2011. The record is quite clear that the FEU made it a practice to carefully review andcorrect transcript errors each day. In addition to the members of the EEC panel, other FEU staffwere present in the hearing room and heard the false evidence. Despite all this, it was not untilJanuary 6th that the FEU finally admitted the truth. Even then, the "correction" was offered onlybecause the question arose yet again in another Information Request.

The consistent theme that emerges from the nature of the responses to ESAC's questions isthe FEU's reluctance to provide a complete and accurate answer to questions related to theseparation between the TES business and the administration of EEC funding. The circumstancescall into question the veracity of the evidence of the entire EEC panel.

The result has been to prejudice the interests of the Commission and Intervenors in threeprocesses currently pending before the Commission. There has been a denial of a full and fairopportunity for the Intervenors, Commission counsel and the Commission itself to ask follow upquestions of the applicant had the truth been revealed in a timely fashion. This situation raises avery serious question as to what the consequence should be for the FEU in having created thisproblem.

The regulatory process is uniquely dependent upon regulated entities being accurate andforthright in providing information to the Commission and interested parties. The process shouldnot devolve into a game in which only if a party succeeds in asking precisely the right question isthe utility required to provide the desired information. Moreover, when the right questions areasked and the answers appear calculated to obfuscate or mislead, the process breaks down. Toborrow from the modem vernacular, it is not sufficient that there be a certain "truthiness" tosworn evidence; it must be the truth, the whole truth and nothing but the truth.

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The proceedings in question have become more protracted and needlessly costly forIntervenors. More importantly, the Commission, ratepayers and other stakeholders can have noconfidence in the integrity of the process if evidence is not provided in a forthright manner.What signal does it send to participants in this process and, indeed, in future proceedings beforethe Commission, if the FEU suffers no penalty?

At a minimum, the Commission can and should draw adverse inferences in weighing theevidence adduced by the EEC panel. ESAC, other Intervenors, and Commission staff andcounsel have been put to additional expense that could have been avoided if the FEU had beenforthright in its responses to Information Requests. Among other things, ESAC would not havefound it necessary to attend at the Oral Hearing for the purpose of asking questions on this issue.In addition, ESAC has now been put to additional expense as a consequence of this development.

ESAC's contention in this process and in the AES Inquiry and the DSD CPCN Applicationis that, because of the inherent conflicts that exist when the regulated utility acts as trustee ofEEC funds and at the same time has a separate vested business interest in developing a non­regulated business, extraordinary oversight is required. To the extent there was any doubt aboutthe need for such oversight, we submit that the FEU has proved our case.

All of which is respectfully submitted by the Energy Services Association of Canada

by its Counsel

McMillan LLP

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