2013/14 Annual Report TABLE OF CONTENTS 1 MESSAGE FROM THE BOARD CHAIR 18 STAKEHOLDER RELATIONS 3 ORGANIZATIONAL OVERVIEW 21 REPORT ON PERFORMANCE MANAGEMENT DISCUSSION CORPORATE GOVERNANCE & ANALYSIS 7 29 OUR POWER PLANTS FINANCIAL OVERVIEW 9 30 ALIGNMENT WITH GOVERNMENT’S RISK MANAGEMENT 14 LETTER OF EXPECTATIONS 37 CONSOLIDATED FINANCIAL SUSTAINABILITY REPORT 16 40 STATEMENTS List of Figures: Figure 1: Corporate Structure of Columbia Power Figure 8: Consolidated Capital Spending Corporation Figure 9: Arrow Lakes Power Corporation Statement of Figure 2: Government’s Letter of Expectations Income Forecast (non-IFRS presentation) Figure 3: Performance Measures: Framework Figure 10: Brilliant Power Corporation Statement of Figure 4: Performance Measures: Data Source + Income Forecast (non-IFRS presentation) Verification Figure 11: Brilliant Expansion Power Corporation Figure 5: Performance Results + Target Statement of Income Forecast (non-IFRS Figure 6: Consolidated Statement of Income Forecast presentation) Figure 7: Proforma Consolidated Statement of Financial Figure 12: Risk Management Table Position POSI+IVE ENERGY | i MESSAGE FROM THE BOARD CHAIR I am pleased to submit Columbia Power Ktunaxa Nation Council and the Okanagan Corporation’s 2013/14 Annual Report. Nation Alliance. 2013/14 was a year of significant accom- The success of the Waneta Expansion is due plishments for Columbia Power Corporation in no small way to the on-going support of the (Columbia Power) with the progress of provincial and local governments, as well as Waneta Expansion construction, the Final local community stakeholders. In particular, Acceptance of the Brilliant Expansion Project, I would like to thank the members of the the achievement of high levels of reliability for Community Impact Management Committee, all operating facilities, and the collaboration who tour the project and meet monthly, for with BC Hydro on joint project development their continued commitment. Their input and activities. support is invaluable to the success of the project. The Waneta Expansion Project is the con- struction of a new 335MW hydroelectric In addition to its 32.5 per cent ownership in- facility immediately downstream of the terest in the Waneta Expansion, Columbia Waneta Dam near Trail, directly above the Power—in joint venture with Columbia Basin confluence of the Pend d’Oreille and Trust—owns the Brilliant Dam and Generating Columbia Rivers. There are three partners Station, the Brilliant Expansion Generating Lee Doney, Board Chair on the project: Columbia Power, Columbia Station and Brilliant Terminal Station, and the Basin Trust—our joint venture partner on our Arrow Lakes Generating Station. Columbia other assets—and the Canadian company, Power manages these facilities on behalf of Fortis Inc. Columbia Power is acting as the the joint venture. Owner’s Representative for the construction on behalf of the partnership. Construction In 2013/14, Final Acceptance of the Brilliant has been underway since October 2010 and Expansion was achieved as a result of settle- is progressing well. We are especially proud ment of all outstanding post-construction of the safety and environmental records to deficiencies with the receipt of $1.2 million date. We recently reached over 2.3 million from the contractor. hours of work without a major safety or environmental incident. On a forecast basis, The reliability of the operating facilities is a the project is on-schedule for commercial key priority and a very high level of reliability was operation in spring 2015 and is on-budget. achieved this year. The reliability, in terms of percentage of available entitlement in During the four-and-a-half year construction megawatt hours (MWh) were: Arrow Lakes – period, the project will have provided the 98.8% and Brilliant Expansion – 97.8%. equivalent of more than 400 jobs. The local hire rate is 69 per cent, in line with the target. As a result of the Brilliant Expansion settle- In addition to direct employment, Trail and ment and high operating reliability, the financial the surrounding communities are enjoying results for the year were very positive. Con- significant economic benefits—as of March solidated net income for 2013/14 was $20.2 31, 2014, regional spending on goods and million compared to 2012/13 net income of services exceeded $185 million. Benefits $17.8 million and budgeted net income of agreements are in place with both the $18.4 million. Operating revenue in 2013/14 1 | Columbia Power Corporation · 2013/14 Annual Report was $24.6 million compared to 2012/13 for the contents of the report, including what operating revenue of $21.7 million and has been included in the report and how it $23.0 million budgeted. Operating expenses has been reported. in 2013/14 were $3.7 million compared to 2012/13 operating expenses of $3.6 million and The information presented reflects the actual $3.7 million budgeted. Net financing ex- performance of Columbia Power for the pense in 2013/14 was $583 thousand com- twelve months ended March 31, 2014 in relation pared to 2012/13 net financing expense of to the Revised Service Plan published in $324 thousand and expense of $821 thou- June 2013. sand budgeted. I am responsible for ensuring internal In 2013, the success of Columbia Power’s controls are in place to ensure information investments in the Columbia Basin meant that is measured and reported accurately and in the corporation was able to return the Share- a timely fashion. All significant assumptions, holder’s original cash investment. Columbia policy decisions, events and identified risks— Power participated in a joint review with as of May 21, 2014—have been considered staff from the Ministry of Finance and Ministry in preparing the report. The report contains of Energy and Mines to ensure the Corpora- estimates and interpretive information that tion has the appropriate capital structure to represent the best judgement of manage- support its new joint development mandate. ment. Any changes in mandate direction, Recommendations were made to adjust goals, strategies, measures or targets made Columbia Power’s capital structure to reflect since the 2013/14 – 2015/16 Revised Service its long-term capacity to carry commercial Plan was released and any significant limita- debt. In April 2014, Columbia Power returned tions in the reliability of data are identified in this investment to the Province. the report. Columbia Power continued working closely As always, thank you to my colleagues on with BC Hydro on the exploration of joint the Board of Directors of Columbia Power development (or redevelopment of smaller and our partners and employees. Together BC Hydro owned facilities) opportunities in we will continue to contribute to the strong the Columbia Basin. A joint development legacy of hydroelectric power development committee, with members from both Columbia in the Columbia Basin. Power and BC Hydro, met regularly to discuss early stage feasibility of future project con- cepts, focusing on the Elko dam in the East Kootenay. New projects, in partnership with BC Hydro, are a way of adding to Columbia Power’s future energy generating capacity. The 2013/14 Columbia Power Corporation Annual Report was prepared under my direction in accordance with the Budget Transparency and Accountability Act and the BC Reporting Principles. I am accountable POSI+IVE ENERGY | 2 ORGANIZATIONAL OVERVIEW Columbia Power staff at the corporate office in Castlegar COLUMBIA POWER is a Mandate Crown corporation wholly Columbia Power’s mandate, as directed by the Province in Government’s Letter of Expectations, owned and controlled by the is to: Province of British Columbia, • Efficiently develop and operate commercially viable, environmentally sound and safe existing under the Business power project investments for the benefit of the Province and residents of the Columbia Corporations Act and re- Basin; porting to the Minister • Act as the manager of power project joint ventures with Columbia Basin Trust; of Energy and Mines and • Act as the Owner’s Representative and manager for construction of the Waneta Expansion Minister Responsible for Project; and Core Review. • Implement the approved Strategic Plan. The company is located in Vision Castlegar, in the heart of the Columbia Power’s vision is to be: Columbia River system, in • A respected, continually improving company that maximizes shareholder value by develop- the mountains and valleys ing and operating power projects in a socially and environmentally responsible manner, that characterize the Colum- while achieving the development objectives of the Province and the Columbia Basin. bia Basin, where hydroelec- • An acknowledged partner of choice in sustainable, smart solutions—powering our com- tric generation has existed munities. since the late 1800s. The company develops, owns Values and operates hydropower Our thinking and actions guide how Columbia Power works with its staff and external stake- projects in the Basin. holders. The company is driven by our values of: • Integrity • Respect • Versatility • Teamwork • Sense of community • Promotion of work/life balance • Sustainability 3 | Columbia Power Corporation · 2013/14 Annual Report Arrow Lakes Generating Station Brilliant Dam & Generating Station Brilliant Expansion Waneta Expansion JOINT VENTURES WITH COLUMBIA BASIN TRUST Columbia Power owns three hydropower facilities in joint venture partnership with Columbia Basin Trust (the Trust). These facilities are owned by corporations jointly owned