October 22, Via . Industrial Customers Group c/o Robert Hobbs McBain Avenue Vancouver, BC V6L 3B1. Attention: Mr.

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1 B1-3 Dennis Swanson Director, Regulatory Affairs FortisBC Inc. Suite Springfield Road Kelowna, BC V1Y 7V7 Tel: (250) Fax: Regulatory Affairs Correspondence Via Industrial Customers Group c/o Robert Hobbs McBain Avenue Vancouver, BC V6L 3B1 Attention: Mr. Robert Hobbs Dear Mr. Hobbs: Re: Generic Cost of Capital Proceeding Stage 2 FortisBC Inc. (FBC) Information Request (IR) No. 1 to the Industrial Customers Group (ICG) on the Evidence of Dr. Andrew Safir In accordance with British Columbia Utilities Commission Order No. G setting out the Regulatory Timetable for the Stage 2 Generic Cost of Capital Proceeding, FBC respectfully submits the attached IR No. 1 to ICG on the Evidence of Dr. Andrew Safir. If further information is required, please contact the undersigned. Sincerely, FORTISBC INC. Original signed: Dennis Swanson Attachment cc ( only): Commission Secretary Registered Parties

2 FortisBC Inc. (FortisBC or the Company) British Columbia Utilities Commission (BCUC or the Commission) Generic Cost of Capital (GCOC) Stage 2 Information Request No. 1 to Industrial Customers Group (ICG) Evidence (Exhibit C- 22) Submission Date: Page Safir Evidence Exhibit B-22, page, Lines -9, Footnote Dr. Safir states; Although lower gas prices are a factor encouraging FBC customers to move to alternative suppliers, FBC electric prices are still relatively lower than gas in comparison to most other regions. Dr. Safir footnotes that statement with the following reference (Footnote ): Application by Terasen Gas Inc. ( TGI ), Terasen Gas ( Vancouver Island ) Inc. ( TGVI ) and Terasen Gas (Whistler) Inc ( TGW ) (Collectively the Terasen Utilities ) for Return on Equity and Capital Structure, May 15, Tab 1, Business Risks, pp Please confirm Attachment 1.1 is the excerpt referenced in Footnote. 1.2 Please confirm that FBC s electric prices, in particular in comparison to gas prices, are not mentioned nor analysed in the excerpt referenced in Footnote and provided in Attachment Please confirm that Dr. Safir used 2009 data as the basis for concluding that FBC s electric prices are still relatively lower than gas in comparison to most other regions. 1. Please confirm that it is preferable to use current gas and electric price data when assessing FBC s current business risk, as opposed to data that is approximately four years old. 1.5 Please explain how the comparison of the gas-electric price spread for FBC with the gas-electric spread in other regions assists in the comparison of FBC to the benchmark utility, with respect to competitive risks faced by FBC. 2.0 Safir Evidence Exhibit B-22, page 13, Footnote 13 The risk differential was first determined and confirmed by the Commission in 1999 as a result of a NSP. More recently, the 2009 Terasen/Fortis gas utility rate proceeding re-affirmed the differential. 2.1 Please identify the 2009 Terasen/Fortis gas utility rate proceeding to which Dr. Safir is referring. 2.2 Please quote the passages from the decision in the referenced proceeding where Dr. Safir considers that the Commission re-affirmed the differential. 32

3 FortisBC Inc. (FortisBC or the Company) British Columbia Utilities Commission (BCUC or the Commission) Generic Cost of Capital (GCOC) Stage 2 Information Request No. 1 to Industrial Customers Group (ICG) Evidence (Exhibit C- 22) Submission Date: Page Safir Evidence Exhibit B-22, page 23, lines 3- Dr. Safir says: A recent report by the Edison Electric Institute points out that integrated companies may be less risky than non-integrated companies because they are less sensitive to variations in purchased power costs. That same report also indicates that, if FBC were to divest its generating assets, its business risk would increase due to the reduction in the rate base. [emphasis added] Dr. Safir footnotes Electric Utilities and Risk Competition [sic - Compensation] EEI, June Please confirm that the report cited by Dr. Safir makes no reference to FBC at all. 3.2 Dr. Safir s footnote does not include any specific page reference to the EEI report. Please provide the passage(s) in the EEI report that Dr. Safir says indicates that, if FBC were to divest its generating assets, its business risk would increase due to the reduction in the rate base.

4 Tab 1 Business Risks Figure 3.1.: BC Hydro s Electricity Rates are Among the Lowest In North America Average Rate Comparison as of April 1, 200 Across North America 2 cents per kwh (CAD) Winnipeg Seattle Montreal Vancouver Portland Miami Toronto Halifax Edmonton Residential Commercial Industrial San Francisco Boston New York City Rates are based on Hydro-Quebec's "Comparison of Electricity Prices in Major North American Cities" Seattle rates are based on Seattle City Light 3.2 TGI competitiveness to electricity versus other jurisdictions in decline: TGI faces a higher level of price competition than other gas distribution utilities in Canada and the Pacific Northwest. Figure 3.2 below shows the natural gas versus electric price differential for TGI in the Lower Mainland and six other gas distribution companies, based on current residential customer rates. Other than Gaz Metro, the other gas distribution companies enjoyed a price advantage ranging from approximately 25% to 7% as compared with a 32% price differential for TGI. Of the comparison group, Gaz Metro has slightly lower rates than its electric counterpart. Similar to TGI and TGVI, Gaz Metro competes with a major hydro generation-based electric utility, but has higher allowed returns and equity thickness than does TGI. Page 25

5 Tab 1 Business Risks Figure 3.2 Comparison of Natural Gas versus Electric Price Advantage for Six Companies (2009) ANNUAL BILL - NATURAL GAS ANNUAL BILL - ELECTRIC * GAS VS. ELECTRIC PRICE ADVANTAGE Terasen Gas (Lower Mainland) $1,11 $1,61-32% lower Puget Sound Energy - Washington $1,76 $2,530-2% lower Northwest Natural Gas - Oregon $1,60 $2, -25% lower Direct-Atco - Alberta $775 $2,979-7% lower Union Gas - Ontario $1,010 $2,366-57% lower Enbridge Gas - Ontario $75 $2,366-63% lower Gaz Metro - Quebec $1,53 $1,57-2% lower Notes: *Calculated BC Hydro rate based on the F RRA approved increase of.7% (inclusive of the applicable 1% rate rider) Annual Bills for natural gas and electric, for all territories, are based on an annual use rate of 95 GJ. The efficiency of gas equipment is assumed to be 90% relative to 100% for electricity to determine equivalent electricity. Lower gas efficiency appliances would result in lower gas price advantages than indicated above. The annual electric rates do not include the fixed monthly charges since it is assumed that a household already pays the basic electric charge for non-heating use. All rates are as at April 1, All rates are exclusive of applicable franchise fees and/or taxes (with the exception of the Carbon Tax). Interior BC community customers pay a franchise fee of approximately 3%, which would reduce the indicated price advantage of gas by a like amount. All annual bills are best estimates based on the information available from each utility. 3.3 Forward looking operating cost advantage of natural gas versus other energy sources is likely to decline: Managing to remain competitive to the price of electricity in BC has become increasingly significant, particularly over the last few years with both increased natural gas prices and price volatility. Near term economic realities have improved the competitiveness of natural gas at this time. Market prices are currently depressed due to declining industrial demand, high storage balances and weaker crude oil prices. Page 26