Second Expert Statement of Elroy Switlishoff, P.Eng., M.Eng.

I. The Nature of Physical and Contractual Flows of Electricity

1. Canada’s inability to understand Mercer’s perspective in this claim is perhaps grounded in the confusion Canada has created, as demonstrated by flawed understandings described in its Counter Memorial, understandings which are directly contradicted by Canada’s own witnesses.

2. Canada’s first flawed understanding concerns the characteristics of physical and contractual electricity flow, and is immediately apparent in Canada’s statement that Celgar believed it could “purchase more electricity from FortisBC, its local utility, at low-cost regulated rates and then sell it as if it were its own ’self-generated‘ electricity.”1 This is followed by the claim that “{i}t would then pretend that this electricity was its own ’selfgenerated’ electricity so that it could sell it at a higher price. In reality, the Claimant’s selfgenerated electricity would continue to serve its pulp mill–as it always had.”

3. The actual reality of the situation is that electrons will physically flow along the path of least resistance, which in normal circumstances is from the point of generation to the nearest load. The laws of physics dictate that it can be no other way. Any other “flow” of electrons, such as an electricity sales agreement or a market electricity transaction, is a deemed flow, for which accounting, metering, and scheduling mechanisms must necessarily exist to accommodate the difference between the physical reality dictated by the laws of physics, and the contractual reality upon which both the wholesale and retail electricity markets are based. This is true for every interconnected electrical system.