Hydro- Québec
TransÉnergie
Application R-3669-2008
NETWORK UPGRADE
POLICY
Original : 2008-07-29
HQT-10, Document 5
Page 1 of 25
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TransÉnergie
Original : 2008-07-29
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TransÉnergie
Application R-3669-2008
Table of Contents
1. INTRODUCTION ......................................................................................................... 5
2. NETWORK UPGRADE POLICY OF THE TRANSMISSION PROVIDER.......... 7
2.1 Context...................................................................................................................... 7
2.3 Compliance of the Network Upgrade Policy with Régie decisions.......................... 9
2.4 Rate Impact of Network Upgrades ......................................................................... 11
3. APPLICATION OF THE ANNUAL MAXIMUM FOR NETWORK UPGRADES
TO SUPPLY THE LOADS OF THE DISTRIBUTOR ................................................ 13
4. NETWORK UPGRADES FOR THE INTEGRATION OF WIND POWER TO
SUPPLY THE NATIVE LOAD ...................................................................................... 16
4.1 Applicable Provisions Under the Open Access Tariff............................................. 16
4.2 Question Raised by the Régie ................................................................................. 16
4.3 Consequence for the Transmission Provider .......................................................... 17
4.4 Other Calculation Methods for the Contribution of the Distributor ....................... 19
4.4.1 Contribution for Switchyards........................................................................... 19
4.4.2 Applicable Charges for Surplus Costs Paid by the Distributor....................... 20
4.4.3 Conditions of Payment by the Distributor ....................................................... 20
5. SUMMARY OF THE TRANSMISSION NETWORK UPGRADE POLICY ........ 21
6. CONCLUSION ........................................................................................................... 25
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1
1. INTRODUCTION
2
In its recent decisions, the Régie de l’énergie (“Régie”) has asked the Transmission
3
Provider to provide a follow-up for certain elements pertaining to its network upgrade
4
policy.
5
On the one hand, in decision D-2008-019, pursuant to the Transmission Provider’s
6
application to modify rates and conditions starting on January 1, 2008, the Régie stated
7
the following regarding the Transmission Provider’s network upgrade policy concerning
8
the increase in native load:
9
“Finally, the Régie questions the application of the Open Access Transmission
10
Tariff in the case of upgrades to the network substations [“postes-source”] and
11
also of upgrades to the substations on the main network (735 kV) which are due
12
to an increase in the native load. Its concerns pertain to, among others, the
13
risks of exceeding the maximum contribution when the upgrades are subject to
14
several separate applications filed under Section 73. In that perspective, the
15
Régie asks the Transmission Provider to discuss, in its next rate application, the
16
issue of the application of the Transmission Provider’s maximum contribution
17
which seeks to ensure rate neutrality for all upgrades required starting from
18
supply (connection of generating stations) to the point of delivery.”1 [Unofficial
19
translation of Régie decision, translator’s version]
20
On the other hand, in decision D-2007-141, pursuant to an application filed by the
21
Transmission Provider for the construction of assets required to connect 990 MW of
22
wind power, which is purchased by the Distributor, to the Matapedia regional system, the
23
Régie issued the following order:
1
Régie de l’énergie, D-2008-019, February 15, 2008, page 97.
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“In regards to the analysis on the Project’s rate neutrality, the Régie shares the
2
opinion expressed by the AIEQ expert. To calculate which additional revenues
3
must be considered to determine the Project’s rate impact, the parameter used
4
must be an estimate of the variance of the Distributor’s needs on the system’s
5
peak, therefore the usual criterion used to set a rate, and not the maximum
6
capacity to be connected and transmitted on the system. This maximum
7
capacity of 990 MW is applied as a design criterion of the network but not as a
8
rate-setting criterion.”2
9
“Because it is a first case of this nature for the Distributor since the
10
implementation of the regulatory framework resulting from decision D-2002-95,
11
the Régie deems it necessary to examine all proposals or avenues that may
12
ensure the rate neutrality of the project within the current regulatory framework,
13
whether it be from a higher financial contribution from the customer, a
14
complementary contractual agreement, otherwise. In its absence, the
15
Transmission Provider will have to submit a proposal regarding the treatment of
16
missing revenues from the Project, as required, pursuant to Section 49. In this
17
case the Régie will advise consequently.”3 [unofficial translations of the
18
decision, translator’s version].
19
The current document responds to these orders set out by the Régie:
20
Section 2 describes the network upgrade policy and its application by the Transmission
21
Provider while section 3 explains the terms of application of the annual cap for the loads
22
connected by the Distributor. Section 4 deals with the application of the network upgrade
23
policy for wind farms selected by the Distributor its calls for tenders for electricity
2
3
Régie de l’énergie, D-2007-141, December 18, 2007, page 24.
Régie de l’énergie, D-2007-141, December 18, 2007, page 25.
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purchases and, finally, section 5 provides a summary of the Transmission Provider’s
2
network upgrade policy by explaining the underlying principles, and different cases to
3
which it applies, for point-to-point and native load transmission services.
4
2. NETWORK UPGRADE POLICY OF THE TRANSMISSION PROVIDER
5
6
2.1 Context
The Act respecting the Régie de l’énergie defines the Transmission provider as follows:
7
“‘Electric power carrier’ means Hydro-Québec when carrying on electric power
8
transmission activities”
9
And it defines the transmission system as follows:
10
“‘Electric power transmission system.’ ” means a network of installations for the
11
transmission of electric power, including step-up transformers located at
12
production sites, transmission lines at voltages of 44 kV or higher, transmission
13
and transformation substations, and any other connecting installation between
14
production sites and the distribution system. 4
15
According to these definitions, the network of installations for the transmission
16
system that seek to meet native load requirements, and requirements for system
17
integration and point-to-point transmission services, is included among the
18
Transmission Provider’s assets. However, the Régie subsequently released
19
certain rules that seek to limit the cost of network upgrades carried out to meet
20
the requirements for transmission services. These upgrades are included in the
21
Transmission Provider’s rate base.
4
Act Respecting the Régie de l’énergie, R.S.Q, Chapter R-6-01.
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2.2 Open Access Transmission Tariff
2
The Transmission Provider’s network upgrade policy is described in Attachment J of the
3
Open Access Transmission Tariff. According to this policy, the costs of transmission
4
network upgrades that seek to respond to point-to-point, network integration and native
5
load transmission service requirements, including for the connection of generating
6
stations under Section 12A.2, are borne by the Transmission Provider up to the
7
maximum amount that is specified, multiplied by the new maximum capacity to be
8
transmitted on the system. The maximum amount proposed here is $636/kW. Any
9
additional cost incurred by the Transmission provider to meet the need for transmission
10
services or for generating station connections must be paid for by the requestor,
11
augmented by 15% to account for operating and maintenance costs, and by applicable
12
taxes.
13
In the case of generating station connections, whether their purpose is to meet native
14
load requirements or point-to-point transmission service requirements, the Transmission
15
Provider also pays the additional cost of the switchyard, without exceeding the
16
maximums set out in Attachment J, within the maximum amount described above. The
17
Transmission Provider also bears the operating and maintenance costs of switchyards,
18
at a rate of 15%, in addition to the maximum contribution that is applicable.
19
As for the needs arising from growth in the Distributor’s native load served by satellite
20
substations, the maximum amount applies to all projects carried out by the Transmission
21
provider during the year and all load growth that such projects are to serve over a 20
22
year period.
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In the case of temporary transmission services, a provision is also specified in the Open
2
Access Tariff to reduce the maximum amount in proportion to the planned duration of
3
service.
4
2.3 Compliance of the Network Upgrade Policy with Régie decisions
5
The Transmission Provider’s network upgrade policy was first approved by the Régie in
6
decision D-2002-955 pertaining to the Transmission Provider’s application to modify
7
rates and conditions starting on January 1, 2001.
8
In that decision, the Régie accepted the Transmission provider’s proposal pertaining to
9
the required system improvements to ensure the long-term operability of the system,
10
whereby this equipment can be included in the Transmission Provider’s rate base if it is
11
deemed by the Régie, in the framework of a rate case, to be a useful and prudent
12
acquisition. These acquisitions serve to maintain a good operation of the system and to
13
ensure flows that are safe and reliable, to the benefit of all users of the system.
14
Also, concerning network upgrades pertaining to transmission service requests for
15
network customers and point-to-point transmission services, the Régie confirmed in
16
decision D-2002-95 that such upgrades could be included in the Transmission Provider’s
17
rate base as long as the total amount paid by the Transmission Provider does not
18
exceed the present value of the transmission service over 20 years, corresponding to
19
the maximum contribution described above. In so doing, the Régie recognized that the
20
rate impact of such network upgrades would, at worst, be neutral for all customers and,
21
at best, favourable by reducing the transmission tariff for all customers.
5
Régie de l’énergie, D-2002-95, pages 297-300.
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However, concerning network upgrades to meet native load requirements, the Régie has
2
disassociated itself from the Transmission Provider’s proposal to the effect that no
3
maximum contribution should apply to native load. It stated that the same maximum
4
contribution had to be applied to native load than in the case of network upgrades for
5
network integration and for point-to-point transmission services so that all customers
6
receive equal treatment and to avoid inequitable situations for transmission services
7
other than those required to supply the native load.6 In that decision, the Régie did not,
8
however, specify whether its apprehension for inequity was based on mutual conditions
9
of access to the Transmission Provider’s system by third parties or on other
10
considerations.
11
In decision D-2006-66,7 the Régie approved the sum of the Distributor’s projects carried
12
out within one year to meet the needs arising from growth in the native load served by
13
satellite substations as well as the provisions of Attachment J pertaining to temporary
14
services.
15
Concerning the requests for the connection of generating stations, in decision D-2006-
16
668, D-2007-089 and D-2007-3410 the Régie approved Section 12A proposed by the
17
Transmission Provider in order to ensure rate neutrality for connections that were not
18
selected by the Distributor in a call for tenders or when a call for tenders is waived. The
19
Transmission Provider must ensure it receives transmission revenues that are at least
20
equal to the costs associated with the integration of a generating station to the
21
transmission network. Pursuant to Section 12A, a generating station owner is not
22
required to provide the commitments under Section 12A for any generation obtained by
6
Régie de l’énergie D-2002-95, page 299.
Régie de l’énergie D-2006-66, page 35.
8
Régie de l’énergie D-2006-66, pages 35-40.
9
Régie de l’énergie D-2007-08, pages 71-78.
10
Régie de l’énergie D-2007-34, pages 5-6.
7
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the Distributor through a call for tenders or when such a call for tenders is waived since
2
in that case the transmission customer is the Distributor which pays the Transmission
3
Provider the transmission tariff applicable to native load to meet all of its supply
4
requirements.
5
2.4 Rate Impact of Network Upgrades
6
In compliance with the Régie’s order, the rate impact of a network upgrade is evaluated
7
by the Transmission Provider in the framework of applications it submits to the Régie for
8
the connection of generating stations,11 requests for network upgrades for point-to-point
9
transmission services,12 or system upgrades for supplying the native load.13 Thus, it has
10
been demonstrated by the Transmission Provider on repeated occasions, and approved
11
by the Régie, that the application of the specified maximum contribution has made it
12
possible to preserve rate neutrality and that network upgrades do not lead to an increase
13
of the transmission rate that is in effect.14 The application of the maximum contribution,
14
multiplied by the new maximum capacity to be transmitted on the system, makes it
15
possible to ensure that there is no discrimination based on the source of energy
16
(hydraulic, thermal, wind, biomass, etc.) or on the end-use of generation (native load,
17
point-to-point or network integration transmission services).
11
Examples: Toulnoustouc generating station (R-3497-2002), Péribonka generating station (R-3581-2005),
Chtes-Allard/Rapides-des-coeurs generating stations (R3585-2005), Integration of wind farms to the
regional network of Matapedia (R-3631-2007).
12
Example: construction of the 315 kV transmission line Chénier-Outaouais (R-3646-2007).
13
Examples : Temporary connection of the Éléonore mining project to the transmission system (R-36562008), New Mont-Tremblant substation upgrade at 120-25 kV and two new supply lines at 120 kV (R3651-2007), 2008 Investment Budget for the projects of the Transmission Provider for which the individual
project cost is below $25 million (R-3641-2007).
14
For example see document of the Régie de l’énergie, D-2002-95, page 298, which refers to Exhibit HQT10, Document 1.5, which shows the calculation method of the maximum contribution to ensure the rate
neutrality of an investment.
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When examining the rate neutrality of integration of new generation in the network, it is
2
important to make a distinction between the characteristics of two (2) transmission
3
services: point-to-point transmission services on the one hand and native load
4
transmission services on the other. When new generation is integrated in the network for
5
the use of point-to-point transmission services, the source of generation can be directly
6
linked to deliveries from a single point of receipt and it must be subject to at least one of
7
the commitments specified in Section 12A. The Transmission Provider then applies the
8
maximum contribution to the source of generation, on the basis of the planned maximum
9
capacity.
10
In the case of supplying the native load, the Distributor must supply a large variety of
11
loads with different supply characteristics from a portfolio of resources that also have
12
different characteristics. In addition the Distributor can never directly identify a specific
13
resource for the supply of a specific load. Therefore, the Transmission Provider applies
14
the maximum contribution to the resources on the basis of the maximum capacity to be
15
transmitted under the Open Access Transmission Tariff.
16
The approach advocated by the Régie thereby seeks to limit the amount of the
17
investments that will be added to the Transmission Provider’s rate base, by applying the
18
maximum contribution to the native load transmission service, in order to limit the
19
resulting rate impact. This approach is conservative when compared with the one that
20
prevails in several jurisdictions that apply the “rolled-in” methodology, which makes it
21
possible to include all the network upgrades for supplying the native load in the
22
Transmission Provider’s rate base.
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2
3. APPLICATION OF THE ANNUAL MAXIMUM FOR NETWORK UPGRADES
TO SUPPLY THE LOADS OF THE DISTRIBUTOR
3
In decision D-2008-019, the Régie “questions the application of the Open Access Tariff
4
in the case of upgrades to the network substations and also to the substations on the
5
main network (735 kV) which are due to an increase in the native load. This modification
6
sought to include the network substations that supply industrial customers. (...) Its
7
concerns pertain to, among others, the risks of exceeding the maximum contribution
8
when the upgrades are subject to several separate applications filed under Section
9
73.”15 [Unofficial translation of Régie decision, translator’s version]
10
This issue refers to the last paragraph of Section C in Attachment J of the Open Access
11
Tariff approved by the Régie in decision D-2006-066. In application R-3640-2007, the
12
Transmission Provider wanted to clarify this paragraph of the Open Access Tariff. These
13
clarifications were later removed by the Transmission Provider.
14
The Transmission Provider wishes to specify that all investments required for its system
15
to meet the needs arising from growth in native load do not only pertain to satellite
16
substations.
17
In fact, some of the Transmission Provider’s investments resulting from new loads for
18
the customers of the Distributor that are directly connected to the transmission system
19
are carried out before satellite substations. In such cases, to supply these new loads of
20
the Distributor, the Transmission Provider can make modifications or upgrades to a
21
network substation, or even a strategic one, which it must take into account when it
22
establishes the Distributor’s required contribution. In order to establish the Distributor’s
23
annual contribution, the investments made by the Transmission Provider are reduced by
15
Régie de l’énergie, D-2008-019, pages 96- 97.
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the amounts that the Distributor receives for the project from its customer, the requestor,
2
when it exceeds the maximum contribution or when options are paid by the latter.
3
Similarly, when investments on the transmission system before satellite substations are
4
required to meet the needs arising from growth of the native load served directly by
5
satellite substations, such investments are taken into account by the Transmission
6
Provider in the establishment of the Distributor’s required contribution. The Transmission
7
Provider therefore adds the cost of these investments to those associated with
8
modifications to satellite substations without adding additional MW since these are
9
already accounted for among the MW to supply satellite substations. In doing so, the
10
Transmission Provider avoids any possibility of dual use of native load growth served by
11
satellite substations when investments are required for a network substation, or even a
12
strategic one, to supply native load.
13
In response to an information request by the Régie,16 the Transmission Provider noted
14
that it evaluates the Distributor’s contribution annually by comparing the total
15
investments for projects associated with an increase of native load for a given year with
16
the maximum contribution for network upgrades associated with these very projects. The
17
maximum contribution for network upgrades that is used is the one approved by the
18
Régie that is in effect by the date in which projects are actually commissioned. In order
19
to ensure a better link with the actual costs associated with projects that supply the
20
Distributor’s loads via satellite substations, the Distributor’s most recent growth forecast
21
is used for each project.
22
Finally, if for a given year the sum of the Transmission Provider’s total investments
23
exceed the maximum amount applicable for all projects, the Transmission Provider
16
R-3640-2007, HQT-14, document 1, pages 105 to 107, and document 1.1 page 54.
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augments the surplus amount by 15% to account for operation and maintenance costs. It
2
also augments it to take into account the applicable capital tax and public utilities tax.
3
This surplus amount will be paid for by the Distributor. Conversely, if the sum of the
4
Transmission Provider’s total investments is lower than or equal to the maximum amount
5
applicable for all projects, no contribution is required from the Distributor.
6
The following Table shows the summary of the annual evaluation of the Distributor’s
7
annual required contribution for the years 2007, 2008 and 2009 relative to costs for
8
network upgrades that are commissioned by the Transmission Provider to meet the
9
needs arising from growth in native load. No contribution would be required from the
10
Distributor for those three (3) years.
11
Table 1
12
Evaluation of the Annual Contribution Required by the Distributor
Additional
MW over 20
years
Max.
Contribution of
the
Transmission
Provider in $M
Project
Costs in $M
Annual
Variance in $M
(a)
(b) = (a) x $k
(c)
(d)=(b)-(c)
2007: Actual Costs on Dec.
31 2007
106
60
58
2
2008: Forecast
465
255
211
43
2009: Forecast
213
122
113
9
Year of Commissioning for
Projects Associated with
Growth in Native Load
13
In order to answer to the Régie’s concerns in this regard, the Transmission Provider
14
proposes to modify the last paragraph in Section C of Attachment J of the Open Access
15
Tariff in order to make clarifications to the text. These modifications are presented in
16
Exhibit HQT-12, Document 4.
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2
Application R-3669-2008
4. NETWORK UPGRADES FOR THE INTEGRATION OF WIND POWER TO
SUPPLY THE NATIVE LOAD
3
4.1 Applicable Provisions Under the Open Access Tariff
4
The Transmission Provider’s network upgrade policy under Attachment J of the Open
5
Access Tariff, does not make a distinction based on the source of electricity generation.
6
The maximum amount that is paid for by the Transmission Provider for network
7
upgrades is equal to the maximum contribution under the Open Access Tariff, multiplied
8
by the new maximum capacity to be transmitted on the system.17 Thus, for example, in
9
call for tenders C/O 2003-02 for which the Distributor selected a capacity of 990 MW of
10
wind power generation, the maximum amount that can be borne by the Transmission
11
Provider for network integration is estimated at $568.3 million.
12
4.2 Question Raised by the Régie
13
In decision D-2007-141, the Régie questioned the rate neutrality associated with this
14
provision of the Open Access Tariff in the case of electricity generated from wind power
15
in particular. Based on the analysis of an intervenor in the case, the Régie established a
16
direct correlation between the capacity of the specific resource, comprised of the 990
17
MW of wind power derived from call for tenders C/O 2003-02, on the one hand, and an
18
equivalent load that would be supplied by the Distributor on the other.
19
In its Supply Plan, the Distributor shows in its capacity balance, the capacity that it is
20
guaranteed under a wind power integration agreement concluded with the Generator for
21
a five-year period. Under this agreement a capacity of 346 MW is guaranteed to the
22
Distributor, which corresponds to 35% of the maximum capacity to be transmitted from
17
Open Access Tariff, Attachment J.
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wind farms over this period. On this basis, the Régie concluded that the project is not
2
neutral on rates over a period of 20 years.
3
The Régie suggested that to apply the Open Access Tariff to this specific resource did
4
not make it possible to ensure rate neutrality and it asked the Transmission Provider to
5
respond to the conclusion set out in its decision.18
6
4.3 Consequence for the Transmission Provider
7
In the Transmission Provider’s opinion, the capacity of 346 MW that is specified in the
8
agreement concluded between the Distributor and the Generator for the integration
9
service for wind power generation is meaningless in terms of the costs associated with
10
the planned network upgrades. In fact, the Transmission Provider must meet the
11
Distributor’s request to integrate all the planned generation of 990 MW to the network
12
independently of the source of generation used.
13
For its part, the Distributor designates to the Transmission Provider the entire portfolio of
14
resources it has available to ensure a reliable supply of electricity for native load. The
15
Distributor’s resources come from hydraulic generating stations, fuel-fired generating
16
stations, wind power, supply contracts, sales programs, imports or sharing of reserves
17
with neighbouring networks, or any other resource. In some cases, the Transmission
18
Provider must therefore resort to network upgrades to transmit electricity for projects for
19
which a presence is planned on the system’s peak, as is the case of wind power, while
20
in other cases the capacity available will not be subject to network upgrades for its
21
transmission (in the case of imports or sharing of reserves with neighbouring networks).
18
Régie de l’énergie, Decision D-2007-141, page 26.
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Contrary to point-to-point transmission services, which specifically identify the load to be
2
supplied, the function of native load transmission service, which is based on basic
3
principles that are identical to those for the network integration transmission service
4
resulting from FERC Orders 888, 889 and 890, is precisely to supply a wide variety of
5
loads with different characteristics that are generated from a wide variety of resources
6
that also each have different characteristics. One characteristic of the native load
7
transmission service is therefore that it does not require the identification of specific
8
resources to supply specific loads, which thereby significantly optimizes the native load
9
transmission service it offers to the Distributor and increases the reliability and
10
availability of the Distributor’s supply.
11
By this very fact, the cost of network integration for some of the Distributor’s resources is
12
low. For example, the cost of the network integration transmission service for the
13
TransCanada Energy generating station in Bécancour is $84/kW, others have a cost of
14
integration that is non-existent, like for example the sharing of reserves with
15
neighbouring networks while others have a high cost of network integration, for example,
16
the 990 MW of wind power in Gaspésie for which the cost of network integration is
17
$605/kW.
18
However, if the portfolio of resources used to supply the Distributor’s native load is
19
considered as a whole, it can be easily noted that the portfolio of resources to supply the
20
Distributor’s native load does not exceed the maximum contribution specified in the
21
Open Access Tariff. It would therefore be inequitable for the Distributor, and
22
discriminatory towards a given source of generation, wind power in particular, to modify
23
the criterion specified in the Open Access Tariff to apply the maximum contribution for
24
network upgrades to the maximum capacity to be transmitted, as well as to replace this
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criterion with another one that is based on customer-specific data which was not subject
2
to a specific request from that customer to the Transmission Provider.
3
Therefore, the Transmission Provider proposes to maintain the range and characteristics
4
of transmission services that it currently offers without introducing exceptions for the
5
connection of wind farms that supply the native load. In the case of wind farms as with
6
any other resource acquired by the Distributor, the Transmission Provider proposes to
7
apply the maximum contribution to the maximum capacity to be transmitted on the
8
network, as specified in the Open Access Tariff.
9
4.4 Other Calculation Methods for the Contribution of the Distributor
10
In decision D-2007-141, the Régie also raised three other points pertaining to the
11
calculation method for the Distributor’s contribution.
12
4.4.1 Contribution for Switchyards
13
The first point deals with the amount of 15% associated with the cost of switchyards that
14
must be paid to wind farms owners to compensate for the operation and maintenance
15
costs of the switchyard that will be incurred. Given that the maximum amount of costs
16
borne by the Transmission Provider excludes the network’s operation and maintenance
17
costs, the Régie rightly noted19 that the 15% that is paid to wind power generators for the
18
switchyard must not be included when calculating the Distributor’s contribution, contrary
19
to what was specified in the administrative Agreement dated March 30, 2007.
20
The Transmission Provider will calculate the Distributor’s contribution when the work is
21
complete by modifying it in this way.
19
Régie de l’énergie, D-2007-141, Section 7, page 27.
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4.4.2 Applicable Charges for Surplus Costs Paid by the Distributor
2
The second point deals with the planned surplus costs that must be paid by the
3
Distributor. Again, in decision D-2007-141, the Régie rightly noted20 that the Distributor’s
4
planned contribution must be augmented by the specified amounts for operation and
5
maintenance costs and taxes.
6
The Transmission Provider will calculate the Distributor’s contribution when the work is
7
complete by modifying it in this way.
8
4.4.3 Conditions of Payment by the Distributor
9
In that decision, the Régie also discussed the terms pertaining to the final payment of
10
the Distributor’s contribution.21 Considering that the work pertaining to the network
11
integration of wind farms selected by the Distributor will be carried out over a planned
12
period of eight (8) years, from 2005 to 2012, the Transmission Provider and the
13
Distributor have agreed, in an Administrative Agreement, that the maximum level of
14
costs to be borne by the Transmission Provider would be established on the basis of the
15
maximum contribution that will be in effect when all the work is completed. This condition
16
does not involve any additional risks for the Distributor, which is an regulated entity like
17
the Transmission Provider and who necessarily assumes a significant portion of the
18
revenue requirement of the latter.
19
The context is different when the Transmission Provider enters into a Connection
20
Agreement with an electricity generator. In that case, in the model Connection
21
Agreement that is described in the Open Access Tariff,
22
Transmission Provider cannot exceed the specified maximum contribution that is in
22
the total costs borne by the
20
Ibid.
Régie de l’énergie, D-2007-141, Section 7, page 28.
22
Open Access Tariff, Section 12A.1, page 34
21
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effect at the time the agreement is executed. In that case, a differing condition would
2
lead to an actual risk for the generator since the latter would not have any guarantee
3
regarding the costs it would have to pay to the Transmission Provider. The regulatory
4
and financial risk for the generator would be to the effect that from the time the
5
connection agreement is executed to the time the generating station enters into service,
6
several months or, in some cases, several years, may pass during which time the level
7
of costs borne by the Transmission Provider may vary significantly, upward or
8
downward.
9
In the face of this uncertainty, generators and their financiers expect a fixed maximum
10
contribution by the Transmission Provider rather than having to bear the uncertainty of a
11
variable contribution over which they have no way to control the volatility.
12
Therefore, the Transmission Provider does not recommend any changes to the
13
conditions for the final payment of the Distributor’s contribution.
14
5. SUMMARY OF THE TRANSMISSION NETWORK UPGRADE POLICY
15
The Transmission Provider’s network upgrade policy applies on the basis rules specified
16
in the Open Access Tariff, which respect the following principles:
17
18
 The Transmission Provider ensures the fair and reasonable service conditions to
all of its customers;
19
 The singularities that are inherent to the supply of native load by the Distributor
20
who has the obligation to serve its customers and must optimize its portfolio of
21
resources is adequately considered;
22
 No specific resource is linked to one of the Distributor’s loads;
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 The calculation of rate neutrality that is applicable, on either an annual or multi-
2
annual basis, seeks to ensure that ultimately other customers of the
3
transmission system will not be subject to significant negative impacts as a
4
result of the capacity upgrades of customers. Rate neutrality is respected based
5
on the duration and nature of the contractual transmission services;
6
 Rate neutrality that is established on a multi-annual basis, in current dollars,
7
provides flexibility to link revenues from one or several service agreements that
8
are executed to the cost of different projects that enter into service.
9
The two following Tables summarize the Transmission Provider’s network upgrade
10
policy, which applies to both point-to-point services for generating station connection
11
and transmission services that require interconnections, as well as native load
12
supply service for the connection of the Distributor’s generating stations and load
13
supply. Similar provisions apply to the system integration transmission service.
14
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Point-to-Point Services
Generating station connections
Interconnections
Customer
Generators, including HQP, for all
electricity that is not selected in a call for
tenders or when a call for tenders is
waived.
Any eligible customer under the
Open Access Tariff
Services
Feasibility study, switchyard, network
integration, network modifications,
metering and telecommunications
equipment.
Cost of network upgrades carried
out by the Transmission Provider
for new interconnections with
neighbouring networks or
increasing capacity of an existing
interconnection, including the
feasibility study.
Maximum
contribution
applicable
The Transmission Provider pays for the costs of network upgrades up to the
maximum contribution in $/kW, multiplied by the new maximum capacity to be
transmitted on the system in kW.
Operation and
Maintenance costs
and applicable taxes
These costs are borne by the Transmission Provider for the portion of costs it
must pay and billed to the customer at a rate of 15% for surplus costs borne
by the customer. The same applies to the applicable Capital Tax and the
Public Utility Tax.
Customer
commitments
The requirement is a Toulnustouc-type
commitment or other type pursuant to
Section 12A. Financial guarantees are
required.
The requirements is a service
agreement that covers the costs
borne by the Transmission
Provider including O & M costs
and taxes. Financial guarantees
are required.
Rate neutrality
-Toulnustouc-Type: annual purchases for
point-to-point services are ˃ annual
purchase commitments for a portfolio of
generating stations.
- Type 12A.2 i): rate neutrality in current
value, identical to interconnections.
- Type 12A.2 ii): annual transmission
revenues are ˃ annual purchase
commitment for each generating station.
- Type 12A.2 iii) the Transmission
Provider does not bear any cost.
The actual value of planned
revenues under the service
agreement are ˃ costs borne by
the Transmission Provider,
including O & M costs and taxes.
All surplus revenues in a service
agreement are available for other
interconnection projects or for
generating station connections.
2
3
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Native Load Services
Generating station connections
Customer
Services
Load connections
Hydro-Québec Distribution
Impact assessments and
Studies required for the Distributor’s
feasibility studies, addition or
call for tenders, feasibility studies,
modification of line equipment,
switchyard, network integration,
transformer systems, shunt
network modifications, metering and
compensation, automatic
telecommunications equipment.
controls, protection systems,
communications links and other
communications equipment. For
the customer loads that are
connected directly to the
transmission system, the
Distributor’s rate provisions will
apply to metering equipment as
well as the substation serving the
customer.
Maximum contribution
applicable
The Transmission Provider bears the
entire cost of network upgrades,
including the feasibility study, up to
the maximum contribution, calculated
in $/kW, multiplied by the new
maximum capacity, in kW, to be
transmitted on the system.
The Transmission Provider bears
the entire cost of network
upgrades, including the feasibility
study, up to the maximum
contribution, calculated in $/kW,
multiplied by the new maximum
capacity, in kW, to be transmitted
on the system, by taking into
account all the projects that are
carried out by the Transmission
provider within a year and all load
growth that such projects are to
serve over a period of 20 years.
Operation and
Maintenance costs and
applicable taxes
These costs are borne by the Transmission Provider for the portion of
costs it must pay and billed to the customer at a rate of 15% for surplus
costs borne by the customer. The same applies to the applicable Capital
Tax and the Public Utility Tax.
Customer commitments
The Distributor pays all of the Transmission Provider’s revenue
requirement, except the revenues derived from system integration and
point-to-point services.
Rate neutrality
The Distributor includes a portfolio of
resources which is optimized based
on its energy requirements. Rate
neutrality over 20 years is ensured by
the diversity and complementarities of
its resources
Rate neutrality is ensured when
the cost in $/kW for load provided
over a period 20 years for all
commissioned projects in a given
year is < the maximum
contribution in $/kW.
2
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6. CONCLUSION
2
The Transmission Provider’s network upgrade policy is compliant with previous Régie
3
decisions. It makes it possible to ensure a fair and equitable treatment of all the
4
Transmission Provider’s customers. This policy also allows the Transmission Provider to
5
offer the reciprocity of access to its system, in compliance with the conditions set out in
6
the Open Access Tariff, which are also compliant with the provisions of FERC Orders
7
888, 889 and 890.
8
In addition, in the case of wind power generation to supply native load, the Transmission
9
Provider believes it is justified to uphold the provisions of the Open Access Tariff that are
10
in effect, while ensuring that some concerns raised by the Régie pertaining to the
11
operation and maintenance costs and the calculation of the Transmission Provider’s
12
contribution are carried out in compliance with the Open Access Tariff.
13
These provisions make it possible to ensure that the Transmission Provider continues to
14
offer a fair and non-discriminatory treatment to the customers of its point-to-point
15
services, comparable to the conditions offered to the affiliates of the Transmission
16
Provider in neighbouring networks.
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