BEFORE THE RÉGIE DE L'ÉNERGIE
IN THE MATTER OF:
HYDRO QUÉBEC DISTRIBUTION
Demande d’approbation du Protocole
d’entente visant la suspension
temporaire des activités de
production d’électricité à la
centrale de Bécancour et de
l’entente finale entre Hydro-Québec
Distribution et TranCanada Énergy
DOSSIER R-3673-2008
prepared on behalf of:
l'Association québécoise des consommateurs
industriels d'électricité (AQCIE)
Conseil de l'industrie forestière du Québec (CIFQ)
14 August 2008
prepared report of:
Robert D. Knecht
Industrial Economics, Incorporated
2067 Massachusetts Avenue
Cambridge, MA 02140
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INTRODUCTION
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CONTEXT
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My name is Robert D. Knecht. I am a Principal and the Treasurer of Industrial
Economics, Incorporated (“IEc”), a consulting firm located at 2067 Massachusetts
Avenue, Cambridge, MA 02140. As part of my consulting practice, I prepare analyses
and expert testimony in the field of regulatory economics. In Canada, I have submitted
expert evidence in regulatory proceedings in Québec, Ontario, Alberta, New Brunswick,
Nova Scotia, Manitoba, and Prince Edward Island. In matters regarding Hydro Québec
Distribution (“HQD”), I have submitted evidence before the Régie on a number of
occasions between 2001 and the present.
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I obtained a B.S. degree in Economics from the Massachusetts Institute of Technology in
1978, and a M.S. degree in Management from the Sloan School of Management at M.I.T.
in 1982, with concentrations in applied economics and finance. My curriculum vitae and
a schedule of my expert evidence presented to regulatory tribunals are attached as Exhibit
RDK-1.
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I was retained by l'Association québécoise des consommateurs industriels d'électricité
(“AQCIE”) and the Conseil de l'industrie forestière du Québec (“CIFQ”) to evaluate the
proposal put forth by Hydro Québec Distribution (“HQD”) I was asked to review HQD’s
analysis in support of its proposal that it exercise its option to extend the suspension of
the Bécancour power plant through 2009. The plant is owned by TransCanada Energy
(“TCE”), and HQD has a long-term supply contract for electric power generated by this
facility.
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This report is based on the initial filing of HQD, the complement to the filing in the form
of responses to questions put forward by the Régie, and my attendance at the hearings in
this proceeding. My analyses and recommendations are based primarily on the
information that was provided by HQD.
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This proceeding is one of a series of proceedings addressing the problem that HQD overforecasted its post-patrimonial supply requirements, and it contracted for electricity
supplies in excess of its domestic needs. In general, HQD is faced with the choice of
either selling its excess supplies on the export markets, or entering into alternative
contractual arrangements with its post-patrimonial load suppliers.
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The current application follows on last year’s proceeding at Docket No. R-3649-2007
which addressed the issue as to whether the 2008 operation of the TCE Bécancour facility
should be suspended (with HQD absorbing all fixed costs incurred by TCE), or whether
the output from TCE Bécancour should be sold on the export market. (IEc did not
participate in that proceeding.) In that proceeding, the Régie approved suspension of
TCE operations for 2008.
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In addition, some four months ago, at Docket R-3648-2007, the Régie addressed the issue
as to whether HQD should modify the supply contracts with its production affiliate,
Hydro Québec Production (“HQP”). The issue in that proceeding was whether the
contracts could be modified to allow HQD to defer receipt of the contracted supplies to a
Report of Robert D. Knecht
Docket No. R-3673-2008
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H Q P S U P P LY
DEFERRAL VERSUS
R E S A L E : U P D AT E
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future time when they would be needed to serve domestic load, or whether HQD should
simply resell the excess supplies from HQP on the export markets. I submitted evidence
in that proceeding.
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In this proceeding, HQD proposes to exercise its option to continue the suspension of the
TCE Bécancour facility for 2009. In support of its proposal, HQD offers two economic
analyses and a strategic assessment.
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The first economic analysis compares the economics of continuing the suspension of the
TCE facility through 2009, with operating the TCE facility and exporting almost the
entire amount of the plant’s output.
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The second economic analysis, provided on the hearing day as Exhibit HQD-1,
Document 3, compares the economics of continuing the suspension with the economics
of operating the facility. However, this alternative operating scenario involves reselling
some of the TCE plant’s output on the export market and using the balance of the TCE
output to permit deferral of more of the HQP supplies than was envisaged in the R-36482007 proceeding.
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To supplement this latter economic analysis, HQD raises a strategic concern that, under a
scenario in which virtually all of the 2009 HQP supplies are deferred, it will face
significant risks associated with any additional unanticipated declines in volume.
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This report has four additional sections:
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First, I update my analysis from the R-3648-2007. HQD’s more detailed analysis
of the deferral of HQP supplies, combined with updating certain market forecasts
that affect replacement costs, reduces the economic attractiveness of the deferral
scenario. The reduced attractiveness of the deferral scenario has implications for
the decision to suspend operation of the TCE plant.
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Second, I review HQD’s first economic analysis comparing the suspension with a
full resale scenario.
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Third, I review HQD’s second economic analysis, comparing the suspension with
a mixed deferral/resale scenario.
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Finally, I comment on the strategic implications of the suspension and alternative
options.
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In Docket R-3648-2007, HQD prepared a net present value (“NPV”) analysis comparing
the value of modifying the HQP supply contracts to allow for deferral with a scenario in
which HQD sold the excess supplies on the export markets. In that proceeding, I agreed
with HQD’s conclusion, based on my review which included a quantitative sensitivity
analysis of the key assumptions in HQD’s analysis.
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However, in that proceeding, I cautioned that HQD’s conclusion was significantly
dependent upon its ability to eventually use the deferred volume. Specifically, I
Report of Robert D. Knecht
Docket No. R-3683-2008
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concluded that if HQD did not expect to need the deferred volume in the reasonably
foreseeable future, it would be better to resell the power in the near term.
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In the current proceeding, HQD has made two modifications to its assumptions regarding
deferred supplies.
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First, HQD forecasts that it will defer about 0.8 TWh less in 2008 than previously
forecast and it will defer 1.3 TWh more in 2009 than previously expected. HQD also
makes small changes to the amounts deferred in 2010 and 2011.
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Second, HQD has apparently evaluated its ability to take back the deferred supplies a
little more carefully. In the last proceeding, HQD concluded that it could use the 9.0
TWh of deferred supply in the 2013 to 2017 period. In this proceeding, HQD concludes
that it cannot use the 9.6 TWh until the 2017 to 2020 period (with a very small amount in
2016), a delay of some four years.
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HQD reports that this change is due to (a) a revised demand forecast that includes more
weather sensitive load and less industrial load, and (b) a more careful evaluation of
monthly requirements. (See HQD-2, Document 4.) This delay reduces the NPV of the
deferral strategy.
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In addition, HQD has updated its forecast market price for exported power. In the last
proceeding, the 2009 net market price was approximately $60 per MWh. In the current
proceeding, HQD reports a 2009 net export market price of $68 per MWh. This change
improves the economic attractiveness of the resale scenario.
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In Exhibit IEc-2, I update my “base case” analysis from the last proceeding. A
comparison of the results is shown in Table IEc-1 below.
TABLE IEC-1
SUMMARY OF HQD ECONOMIC COST ANALYSIS
2008 NET PRESENT VALUE ($ MILLIONS)
HQP Resale
Scenario (No
Deferral)
Renegotiate
Scenario
(Deferral)
Difference
R-3648-2007
$1,110
$934
$176
R-3673-2008
$911
$876
$36
Sources: R-3648-2007: HQD-1, Document 5, Tables 2 and 4
HQD-1, Document 3, Exhibit IEc-2.
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This updated analysis shows that HQD’s decision to defer supplies from HQP is still
economically more attractive than the resale alternative. However, the relative
attractiveness of the deferral scenario is considerably lower than it was. By delaying the
period in which the deferred power will be supplied, and by increasing the near-term sale
value of exports, the “base case” comparison now only modestly favors a deferral
strategy.
Report of Robert D. Knecht
Docket No. R-3683-2008
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In the last proceeding, I conducted a sensitivity analysis of the economics. I tested the
sensitivity of HQD’s analysis to three important parameters in the analysis:
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Resale (Net Export) Price: I simulated a scenario with an increase of $10 per
MWh, at $67 per MWh in 2008 compared to $57 per MWh in the HQD analysis.
In the current proceeding, HQD’s net export price has increased by almost that
much.
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Replacement Power Cost: An economic advantage of the deferral scenario is that
it allows HQD to supplant future replacement cost power with lower-priced HQP
supplies. However, if replacement power costs decline, so would the economic
advantages of the deferral scenario. In the last proceeding, HQD used its longrun replacement cost estimate of approximately $85 per MWh (2008$), and it
continues to use that value in this proceeding.1 In my evidence, I simulated an
alternative scenario at replacement cost of $75 per MWh. In an undertaking to
the Régie staff, I estimated a “base case” for the long-run replacement cost of
power from a natural gas-fired combined cycle facility at approximately $80 per
MWh.
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I also tested the sensitivity of HQD’s analysis to a higher discount rate, at 8.0
percent compared to HQD’s discount rate of approximately 6.45 percent.
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For this assignment, I have not updated all of those analyses. However, since that time,
natural gas futures prices have experienced a roller coaster ride, and are now currently
somewhat lower than when I last performed the analysis. An updated version of my
“base case” scenario for long-run electricity replacement prices is now $75 per MWh, as
shown in Exhibit IEc-3.
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Thus, for sensitivity analysis in this proceeding, I tested the sensitivity of the base case to
a lower replacement cost price. The results are shown in Table IEc-2 below. The details
for the alternative scenario analysis are provided in Exhibit IEc-4.
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It is my understanding that this value is based on HQD’s estimate of future wind power supplies.
Report of Robert D. Knecht
Docket No. R-3683-2008
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TABLE IEC-2
SENSITIVITY ANALYSIS OF HQD REALE VERSUS DEFERRAL COST SCENARIOS
BASE CASE VERSUS LOWER FUTURE REPLACEMENT COST
2008 NET PRESENT VALUES ($MM)
HQP Resale
Scenario
(No Deferral)
Deferral
Scenario
Difference
R-3648-2007 Base
$1,110
$934
$176
R-3673-2008 Base
$911
$876
$36
R-3673-2008 Lower
Replacement Cost
$780
$821
($41)
Source: HQD-1, Document 5, Tables 2 and 4; Exhibit IEc-3, Exhibit IEc-4
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As shown in Table IEc-2, a relatively modest change to the replacement cost for future
power supplies reverses the economic comparison, making the HQP resale scenario more
economically attractive.
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These changes to the economic comparison in a short period of time lead me to conclude
that the strategic advantages of retaining flexibility in its post-patrimonial supplies are a
key consideration for HQD. Deferring power supplies to 2020 or beyond is substantially
less attractive than the scenario put forward by HQD just four months ago. Part of this
change is apparently due to incomplete analysis presented by HQD in the last proceeding,
and part is due to changing economic circumstances.
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I n light of these changes, HQD should be continually evaluating whether it is more
attractive for it to resell the HQP supplies or to defer them to 2020 and possibly beyond.
Also, recognizing continued concerns about excessive optimism in load forecasts, HQD
should retain its ability to resell those supplies as market conditions warrant.
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As I noted in my evidence in that proceeding, however, HQD should be cautious about
substantial, active participation in the export markets. HQD is not in the business
ofselling power, nor does it likely have the internal capabilities to do so effectively in
modern, complex electricity markets. Moreover, having HQD compete with HQP in the
export markets may depress locational prices at the interchanges and it may reduce the
overall ability of Hydro Québec to maximize the value of the province’s resource.
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Therefore, I recommend that the Régie encourage HQD to work with HQP to develop a
more flexible and mutually beneficial mechanism whereby HQP’s contracted supplies for
HQD may be exported rather than deferred. Such an approach may involve some sharing
of the margin difference between the net export price and the HQP contract price to
HQD. A key aspect to any such arrangement should be flexibility, allowing both parties
to take advantage of market opportunities and to provide HQD with a supply option that
can respond to unanticipated changes in load.
Report of Robert D. Knecht
Docket No. R-3683-2008
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TCE SUSPENSION
VERSUS RESALE
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In its filing in this proceeding, HQD offered an economic analysis of its proposal to
continue the suspension of the TCE Bécancour. This analysis is an update of the
methodology presented by HQD at Docket R-3649-2007, in which the first year of the
TCE Bécancour suspension was evaluated. For simplicity, I refer to these scenarios as
the “suspension scenario” and the “resale scenario.”
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In this analysis, both scenarios assume that there is no deferral of HQP supplies, with all
of the excess energy being sold on the export market. In the resale scenario, the vast
majority of the net output of TCE Bécancour is added to the export load (3.9 of 4.3
TWh), although some of the TCE output offsets the need for supplementary power
purchases (0.4 TWh).
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At the outset, a reasonable question to ask is whether this scenario is relevant. In reality,
if HQD were to operate the TCE facility, it would likely increase its deferrals of HQD
production rather than resell almost the entire TCE output. Similarly, a realistic analysis
of the suspension scenario would not assume that 1.8 TWh would be exported; it would
assume that this surplus would be absorbed by deferring HQP supply.
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However, this scenario is not quite as irrelevant as it seems.
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First, as a practical matter, for the reasons I describe above, the economic attractiveness
of the deferral scenario has declined. Operating the TCE facility and deferring HQP
supplies is not as economically attractive as HQD represented three months ago.
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Second, from a more theoretical perspective, this approach may better reflect an
“integrated” approach, from the perspective of all of Hydro Québec. From the narrow
HQD perspective, HQP supplies can be deferred in the near term and returned in the long
term. However, in all likelihood, if HQD defers supplies, it will cause HQP to increase
its exports. And when HQD has the supplies restored, it will reduce HQP exports from
what they otherwise would have been. In effect, evaluating the full resale scenario is
similar to evaluating the matter from the integrated company’s perspective.
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For those reasons, I consider this analysis to be relevant to the issue at hand.
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Turning to the details of the analysis, Exhibit IEc-5 depicts my effort to summarize
HQD’s analysis. The energy balance figures are consistent with those reported in Table 1
of the filing, and the dollar values are based on those reported in Table 2 (as adjusted for
the updated fixed gas transportation cost estimate). Using those figures, I calculated the
implied unit values for the cost of TCE supplies, the cost of other purchases, and the net
resale value.2
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From this exhibit, I note the following:
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As a caveat, I note that these unit costs are averages only, and may make more sense if evaluated on a
monthly basis. In addition, HQD provides little in the way of significant digits, making unit values somewhat
less reliable than they otherwise would be. However, I can analyze only the information provided by HQD.
Report of Robert D. Knecht
Docket No. R-3683-2008
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The fixed costs associated with the TCE Bécancour facility amount to some $74
million, or approximately $146 per kW per year.3
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The implied variable costs of the TCE facility are therefore $290 million, or
approximately $67 per MWh.
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With continued suspension of the TCE facility, HQD will need to purchase
slightly more supplemental energy (0.5 TWh versus 0.1 TWh), to meet its 2009
requirements. Therefore, the net exports in the resale scenario increase by 3.9
TWh of the 4.3 TWh in TCE plant output.
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HQD forecasts that the net export price in the suspension scenario will average
some $4 per MWh more than the average export price in the resale scenario.
HQD does not present any accounting of the reasons for this differential, though
this difference may very well be due to selling more power in off-peak periods
in the resale scenario, and possibly the price-suppressing effect of exporting
additional loads.
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It is important to recognize that there is a relationship between the price paid to
TCE for energy and the net export revenues, since both parameters are linked to
the market price of natural gas. In general, any increase in the export price is
likely to be matched, at least in part, by increases in the supply price from TCE.
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In the resale scenario, because the incremental exports of 3.9 TWh results in a
lower export price that is below the variable cost of TCE supply, the net effect
of the incremental exports is a loss of some $21 million.
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This loss is partially offset by savings on supplementary purchases, because
TCE supply is of lower cost than these alternative supplies. The net effect is a
savings of about $7 million.
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Overall, based on these economics, the suspension scenario is some $14 million
more attractive than the resale scenario.
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Although I cannot present a detailed assessment of the assumptions that underpin the
analysis, I can conclude that the economic differences between the two scenarios are
relatively small.
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The net cost of supplies from TCE in 2009 would be some $360 million. The difference
in economic values between the two scenarios is only some $13 to $14 million, or less
than 4 percent. A shift of only about $2 per MWh in the resale scenario export price
(relative to the TCE supply price), would result in an economic balance between the two
scenarios.
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I would be remiss in my obligations to my clients if I did not mention that this peak demand cost far
exceeds the demand cost recognized in HQD’s allocation methodology for post-patrimonial energy costs. In
fact, it far exceeds the peak demand cost put forward by HQD at Docket No. R-3610-2006 as an alternative
cost allocation approach.
Report of Robert D. Knecht
Docket No. R-3683-2008
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TCE SUSPENSION
VERSUS
DEFERRAL/RESALE
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In short, the economics suggest that the difference between these two scenarios is
minimal. Because HQD calculates that the net export price is modestly lower than the
variable cost of TCE supplies, this analysis suggests that the suspension scenario is more
attractive.
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On 25 July 2008, HQD filed an alternative economic analysis as Exhibit HQD-1,
Document 3. My summary of this analysis is replicated in Exhibit IEc-5.
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In this analysis, HQD compares the economics of the suspension scenario to a
“deferral/resale scenario” in which the TCE Bécancour facility is operated. In this
deferral/resale scenario, HQD assumes that it will be able to use the additional 4.3 TWh
of TCE output to:
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Eliminate all supplementary purchases of energy (which accounts for 0.5 TWh);4
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Resell an incremental 1.6 TWh of energy (2.1 TWh versus 0.5 TWh); and
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Defer an additional 2.1 TWh of HQP production (4.0 TWh versus 1.9 TWh).
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The 2.1 TWh of deferred HQP supply is returned to HQD in 2020.
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The essential economics of this analysis are as follows.
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As with the “resale” scenario addressed in Section 4, HQD incurs fixed costs of
$74 million and variable costs of $290 million, or about $67 per MWh, for the
4.3 TWh of TCE supply.
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In contrast to the resale scenario, however, HQD concludes that it would be able
to net some $69 per MWh on its export load, compared to $64 or $65 in the
earlier analysis. The reasons for this change are not explained. The change does
have a material impact on the economic analysis. Rather than exhibiting a net
loss on export markets as in the resale scenario, HQD forecasts a small net gain.
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As was the case with the resale scenario analysis, operating the TCE facility
reduces HQD’s supplementary purchase costs. For reasons that are not
explained, HQD forecasts a higher supplementary supply benefit associated with
operating TCE in this scenario than it did in the resale scenario.
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Operating the TCE facility in 2009 results in some 2.1 TWh of TCE load
substituting for deferred HQP load. Because the variable cost of TCE supplies
are higher than the cost of HQP supplies, this substitution results in a net loss in
the resale scenario of about $30 million. However, that loss is more than offset
by the return of the HQP supplies in 2020. HQD forecasts that the price of the
HQP supplies in 2020 will be some $40 per MWh lower than its incremental cost
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It is unclear why HQD assumes that it needs to purchase 0.1 TWh of energy in the resale scenario in its first
economic analysis (as shown in Exhibit IEc-2) but that its purchase requirements under the resale/deferral
scenario in the second economic scenario are virtually zero.
Report of Robert D. Knecht
Docket No. R-3683-2008
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OTHER
C O N S I D E R AT I O N S
for new supplies at that time, resulting in a net savings of nearly $80 million in
2020 associated with the deferral.
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Overall, HQD’s analysis shows a modest NPV economic advantage to the
deferral/resale scenario, associated with (a) a small margin on export sales, (b)
reduced supplementary purchase costs in 2009, and (c) a net gain associated with
additional deferrals of HQP supplies.
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Although I cannot conduct a detailed evaluation of these scenarios, I tested the analysis
for its sensitivity to the suspect assumptions. I therefore simulated an alternative version
of this analysis, which is reported in Exhibit IEc-7.
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In this sensitivity analysis, I first assume that the 2009 export price lies midway between
the net export price in HQD’s resale scenario economic analysis ($64 per MWh) and the
export price reported for the suspension scenario ($68 per MWh), or $66 per MWh. As
noted above, HQD provides no explanation as to why the 2009 export price in the
deferral/resale scenario ($69 per MWh) is so much more attractive in this analysis than it
is in the resale scenario in the original economic analysis or even in the suspension
scenario. Second, as I did in the updated deferral analysis in Section 3 of this report, I set
the avoided cost of future supplies at $75 per MWh ($2008), based on my cost analysis of
replacement cost capacity. This assumption affects the net value of the returned HQP
load in 2020.
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The results of this analysis show an economic advantage for the deferral/resale scenario
that is de minimis. Rather than the $20 million NPV advantage in HQD’s analysis, my
alternative shows an advantage of $4 million.
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Thus, while HQD’s economic analysis shows a modest economic advantage for the
scenario in which the suspension of TCE Bécancour is not continued in 2009, this
analysis has a number of suspect assumptions, and it is fairly sensitive to the assumptions
used in the analysis.
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In the hearings in this matter, the HQD witnesses generally argued that their
recommendation to continue the suspension of the TCE plant is based on strategic rather
than economic considerations. While recognizing that the deferral/resale scenario was
economically advantageous, HQD emphasized that there are significant risks associated
with that scenario. In particular, HQD was concerned that, if its 2009 load was even
lower than currently forecasted, it would be required to sell all that additional TCE load
on the export market, because it will be unable to further defer any additional HQP
supplies. Such sales may possibly be required at very unattractive prices, or may be
partially constrained by export capacity limits. By deferring the maximum amount of
HQP supplies in 2009, HQD would have very little flexibility to react to load
fluctuations.
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While I agree that these constraints are an important consideration, I conclude that there
are other significant risks associated with the deferral/resale scenario. To my mind, there
is a significant risk that HQD’s current long-term load forecast continues to be overstated,
Report of Robert D. Knecht
Docket No. R-3683-2008
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CONCLUSION
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and that HQD will not need the deferred supplies until well past 2020. If load growth
does fall short of HQD’s current expectations, it will be in the position either of needing
to “cash out” the deferred HQP supplies in 2020 at the net export price, or attempting to
negotiate a revised agreement with HQP to further delay the restoration of these supplies.
Both of these alternatives would be considerably less attractive than the deferral/resale
scenarios evaluated in Exhibit IEc-6 and IEc-7.
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Over the past five years, HQD has consistently reduced its longer-term load forecast,
particularly with respect to its industrial load. Moreover, HQD expressed concerns about
further reductions in industrial load during the hearings in this proceeding. For that
reason, I believe there is a significant likelihood that the future economic benefit shown
in the HQD economic analysis of the deferral/resale scenario will never be realized.
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Based on the analysis that I was able to undertake as described above, I recommend that
the Régie accept HQD’s proposal to continue the suspension of the TCE Bécancour
facility for 2009, for the following reasons:
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If the TCE facility operates, the net effect on the integrated Hydro Québec is
likely to be an increase in exports similar in magnitude to the full output of the
facility. The economic analysis suggests that this resalescenario is moderately
less favorable than the suspension option.
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HQD’s analysis of a scenario in which the TCE facility is operated and the load
is used partly for exports and partly to defer additional HQP supplies indicates
that this deferral/resale scenario is somewhat more attractive than a suspension
strategy. However, this analysis is suspect in that it does not appear to be
consistent with HQD’s earlier analyses in respect of net export prices and it may
overstate the longer-term benefits of deferring more HQP supplies.
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HQD is not in the business of exporting power, it may not have the internal
expertise to participate effectively in export sales activity, and any effort to do
so may reduce the economic value of the province-wide electricity resource.
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The economic risks of deferring additional HQP supplies are high, and the
benefits of such deferral may never materialize.
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Overall, rather than look for ways to defer more HQP supplies to the indefinite future, I
encourage the Régie to direct HQD to look for ways that it might coordinate with HQP to
opportunistically take advantage of export sale opportunities for the excess supplies.
Report of Robert D. Knecht
Docket No. R-3683-2008
10
EXHIBIT IEc-1
CURRICULUM VITAE AND
EXPERT TESTIMONY SCHEDULE
OF
ROBERT D. KNECHT
Evidence of Robert D. Knecht
Docket No. R-3648-2007
ROBERT
D.
KNECHT
Robert D. Knecht specializes in the practical application of economics, finance and management theory to issues
facing public and private sector clients. Mr. Knecht has more than twenty years of consulting experience,
focusing primarily on the energy, metals, and mining industries. He has consulted to industry, law firms, and
government clients, both in the U.S. and internationally. He has participated in strategic and business planning
studies, project evaluations, litigation and regulatory proceedings and policy analyses. His practice currently
focuses primarily on utility regulation, and he has provided analysis and expert testimony in numerous U.S. and
Canadian jurisdictions. In addition, as Treasurer of IEc since 1995, Mr. Knecht is responsible for the firm's
accounting, finance and tax planning, as well as administration of the firm's retirement plans. Mr. Knecht's
consulting assignments include the following projects:
C
For the Pennsylvania Office of Small Business Advocate, Mr. Knecht provides analysis and expert
testimony in industry restructuring, base rates and purchased energy cost proceedings involving electric, steam
and natural gas distribution utilities. Mr. Knecht has analyzed the economics and financial issues of electric
industry restructuring, stranded cost determination, fair rate of return, claimed utility expenses, cost allocation
methods and rate design issues.
C
For independent power producers and industrial customers in Alberta, Mr. Knecht has provided
analysis and expert testimony in a variety of electric industry proceedings, including industry restructuring, cost
unbundling, stranded cost recovery, transmission rate design, cost allocation and rate design.
C
For industrial customers in Québec, Mr. Knecht has prepared economic analysis and expert testimony
in regulatory proceedings regarding cost allocation, compliance with legislative requirements for crosssubsidization, and rate design.
C
As part of international teams of experts, Mr. Knecht has prepared the economic and financial analysis
for industry restructuring studies involving the steel and iron ore industries in Venezuela, Poland, and Nigeria.
C
For the U.S. Department of Justice and for several private sector clients, Mr. Knecht has prepared
analyses of economic damages in a variety of litigation matters, including ERISA discrimination, breach of
contract, fraudulent conveyance, natural resource damages and anti-trust cases.
C
Mr. Knecht participates in numerous projects with colleagues at IEc preparing economic and
environmental analyses associated with energy and utility industries for the U.S. Environmental Protection
Agency.
Mr. Knecht holds a M.S. in Management from the Sloan School of Management at M.I.T., with concentrations in
applied economics and finance. He also holds a B.S. in Economics from M.I.T. Prior to joining Industrial
Economics as a principal in 1989, Mr. Knecht worked for seven years as an economic and management
consultant at Marshall Bartlett, Incorporated. He also worked for two years as an economist in the Energy Group
of Data Resources, Incorporated.
Industrial Economics, Incorporated
2067 Massachusetts Avenue
Cambridge, MA 02140 USA
617.354.0074 | 617.354.0463 fax
August, 2006
www.indecon.com
Evidence of Robert D. Knecht
Docket No. R-3648-2007
ROBERT D. KNECHT
EXPERT TESTIMONY SUBMITTED IN REGULATORY PROCEEDINGS -- PAST 5 YEARS
DOCKET #
REGULATOR
UTILITY
R-20082012502
Pennsylvania Public
Utility Commission
National Fuel Gas Distribution
Company
R-20082013026
Pennsylvania Public
Utility Commission
P-00072342
DATE
CLIENT
TOPICS
March 2008
Pennsylvania Office of
Small Business Advocate
Transportation and sales customer rate
design, design day forecasts.
T.W. Phillips Gas and Oil
Company
March 2008
Pennsylvania Office of
Small Business Advocate
Rate design treatment of capacity
release revenues
Pennsylvania Public
Utility Commission
West Penn Power d/b/a
Allegheny Power
February 2008
Pennsylvania Office of
Small Business Advocate
Default service electricity procurement,
rate design, reconciliation.
2007-004
New Brunswick Board
of Commissioners of
Public Utilities
New Brunswick Power
Distribution and Customer
Service Corporation
November 2007
New Brunswick Public
Intervenor
Cost allocation, revenue allocation, rate
design.
R-3644-2007
Régie de l'Énergie,
Québec
Hydro Québec Distribution
October 2007
AQCIE/CIFQ
Cost allocation, revenue allocation, rate
design.
P-00072305
Pennsylvania Public
Utility Commission
Pennsylvania Power
Corporation
July 2007
Pennsylvania Office of
Small Business Advocate
Default electric service procurement.
R-00072334
Pennsylvania Public
Utility Commission
UGI Penn Natural Gas, Inc.
July 2007
Pennsylvania Office of
Small Business Advocate
Asset management arrangement, gas
procurement.
R-00072333
Pennsylvania Public
Utility Commission
PPL Gas Utilities Corporation
July 2007
Pennsylvania Office of
Small Business Advocate
Design day forecasting, gas
procurement.
R-00072155
Pennsylvania Public
Utility Commission
PPL Electric Utilities
Corporation
July 2007
Pennsylvania Office of
Small Business Advocate
Cost allocation, revenue allocation, rate
design, energy efficiency.
R-00049255
(Remand)
Pennsylvania Public
Utility Commission
PPL Electric Utilities
Corporation
May 2007
Pennsylvania Office of
Small Business Advocate
Revenue allocation
R-00072175
Pennsylvania Public
Utility Commission
Columbia Gas of
Pennsylvania, Inc.
May 2007
Pennsylvania Office of
Small Business Advocate
Gas procurement.
R-00072110
Pennsylvania Public
Utility Commission
Philadelphia Gas Works
April 2007
Pennsylvania Office of
Small Business Advocate
Gas procurement, margin sharing
mechanisms.
1
ROBERT D. KNECHT
EXPERT TESTIMONY SUBMITTED IN REGULATORY PROCEEDINGS -- PAST 5 YEARS
DOCKET #
REGULATOR
UTILITY
R-00061931
Pennsylvania Public
Utility Commission
Philadelphia Gas Works
P-00072245
Pennsylvania Public
Utility Commission
R-00072043
DATE
CLIENT
TOPICS
April 2007
Pennsylvania Office of
Small Business Advocate
Cost allocation, revenue allocation,
retail gas competition
Pike County Light & Power
Company
March 2007
Pennsylvania Office of
Small Business Advocate
Default service procurement, rate
design
Pennsylvania Public
Utility Commission
National Fuel Gas
Distribution Company
March 2007
Pennsylvania Office of
Small Business Advocate
Design day requirements
C-20065942
Pennsylvania Public
Utility Commission
Pike County Light & Power
Company
November 2006
Pennsylvania Office of
Small Business Advocate
Wholesale power procurement by
provider of last resort
R-3610-2006
Régie de l'Énergie,
Québec
Hydro Québec Distribution
November 2006
AQCIE/CIFQ
Post-patrimonial generation cost
allocation; cross-subsidization; rate
design
P-00052188
Pennsylvania Public
Utility Commission
Pennsylvania Power
Company
September 2006
Pennsylvania Office of
Small Business Advocate
Affidavit: POLR rates, wholesale to
retail.
R-00061493
Pennsylvania Public
Utility Commission
National Fuel Gas
Distribution Corporation
September 2006
Pennsylvania Office of
Small Business Advocate
Rate of return, load forecasting, cost
allocation, revenue allocation, rate
design, revenue decoupling.
R-00061398
Pennsylvania Public
Utility Commission
PPL Gas Utilities Corporation
August 2006
Pennsylvania Office of
Small Business Advocate
Cost allocation, revenue allocation,
rate design
R-00061365
Pennsylvania Public
Utility Commission
PG Energy/Southern Union
Company
July 2006
Pennsylvania Office of
Small Business Advocate
Merger savings, cost allocation,
revenue allocation, rate design.
R-00061519
Pennsylvania Public
Utility Commission
PPL Gas Utilities Corporation
July 2006
Pennsylvania Office of
Small Business Advocate
Design day weather and throughput
forecasts; gas supply hedging.
R-00061518
Pennsylvania Public
Utility Commission
PG Energy/Southern Union
Company
July 2006
Pennsylvania Office of
Small Business Advocate
Design day weather and throughput
forecasts; gas supply hedging.
A-125146
Pennsylvania Public
Utility Commission
UGI Utilities, Inc., Southern
Union Company
June 2006
Pennsylvania Office of
Small Business Advocate
Public benefits of proposed sale of PG
Energy to UGI; asset management
agreement.
R-00061355
Pennsylvania Public
Utility Commission
Columbia Gas of
Pennsylvania
May 2006
Pennsylvania Office of
Small Business Advocate
Gas supply and hedging plan;
procedural issues
R-00061296
Pennsylvania Public
Utility Commission
Philadelphia Gas Works
April 2006
Pennsylvania Office of
Small Business Advocate
Gas procurement and procedural
issues.
2
ROBERT D. KNECHT
EXPERT TESTIMONY SUBMITTED IN REGULATORY PROCEEDINGS -- PAST 5 YEARS
DOCKET #
REGULATOR
UTILITY
R-00061246
Pennsylvania Public
Utility Commission
National Fuel Gas
Distribution
2005-002
Refiling
New Brunswick Board
of Commissioners of
Public Utilities
New Brunswick Power
Distribution and Customer
Service Company
P-00052188
Pennsylvania Public
Utility Commission
R-3579-2005
DATE
CLIENT
TOPICS
Pennsylvania Office of
Small Business Advocate
Gas procurement; unaccounted for gas
retention rates
February 2006
New Brunswick Public
Intervenor
Cost allocation, rate design
Pennsylvania Power
Company
December 2005
Pennsylvania Office of
Small Business Advocate
Cost allocation and rate design for
POLR supplies.
Régie de l'Énergie,
Québec
Hydro Québec Distribution
November 2005
AQCIE/CIFQ
Generation cost allocation; crosssubsidization; revenue allocation
2005-002
New Brunswick Board
of Commissioners of
Public Utilities
New Brunswick Power
Distribution and Customer
Service Company
August 2005
New Brunswick Public
Intervenor
Cost allocation, rate design
R-00050538
Pennsylvania Public
Utility Commission
PG Energy
July 2005
Pennsylvania Office of
Small Business Advocate
Gas procurement diversification
R-00050540
Pennsylvania Public
Utility Commission
PPL Gas Utilities Corporation
July 2005
Pennsylvania Office of
Small Business Advocate
Gas procurement, hedging, retention
rates, sharing mechanism
R-00050340
Pennsylvania Public
Utility Commission
Columbia Gas of
Pennsylvania
May 2005
Pennsylvania Office of
Small Business Advocate
Gas procurement, hedging and
diversification.
R-3563-2005
Régie de l'Énergie,
Québec
Hydro Québec Distribution
April 2005
AQCIE/CIFQ
Generation cost allocation; industrial
demand response
R-00050264
Pennsylvania Public
Utility Commission
Philadelphia Gas Works
April 2005
Pennsylvania Office of
Small Business Advocate
Gas procurement, risk hedging,
financing costs in the gas cost rate.
R-00050216
Pennsylvania Public
Utility Commission
National Fuel Gas
Distribution
March 2005
Pennsylvania Office of
Small Business Advocate
Gas supply procurement and forward
pricing policies.
EB-2004-0542
Ontario Energy Board
Union Gas Limited
March 2005
Tribute Resources Inc.
Cost allocation and rate design for
service to embedded storage pools.
R-00049884
Pennsylvania Public
Utility Commission
Pike County Light and Power
(Gas Service)
January 2005
Pennsylvania Office of
Small Business Advocate
Fair rate of return, cost allocation,
class revenue assignment.
R-00049656
Pennsylvania Public
Utility Commission
National Fuel Gas
Distribution
December 2004
Pennsylvania Office of
Small Business Advocate
Fair rate of return, uncollectibles
costs, automatic rate adjustments,
cost allocation, rate design.
R-3541-2004
Régie de l'Énergie,
Québec
Hydro Québec Distribution
November 2004
AQCIE, CIFQ
Allocation of post-patrimonial
generation costs.
March 2006
3
ROBERT D. KNECHT
EXPERT TESTIMONY SUBMITTED IN REGULATORY PROCEEDINGS -- PAST 5 YEARS
DOCKET #
REGULATOR
UTILITY
C-20031302
Pennsylvania Public
Utility Commission
Columbia Gas of
Pennsylvania
R-049255
Pennsylvania Public
Utility Commission
P-042090 et
al.
DATE
CLIENT
TOPICS
July 2004
Pennsylvania Office of
Small Business Advocate
Customer assistance program funding
and cost allocation.
PPL Electric Utilities
Corporation
June 2004
Pennsylvania Office of
Small Business Advocate
Transmission and distribution cost
allocation, rate design, automatic
distribution increases.
Pennsylvania Public
Utility Commission
Philadelphia Gas Works
June 2004
Pennsylvania Office of
Small Business Advocate
Collections and universal service cost
issues.
RP-2003-0203
Ontario Energy Board
Enbridge Gas Distribution
May 2004
Vulnerable Energy
Consumers Coalition et
al.
Cost allocation, rate design for
pipeline and storage costs
R-049157
P-042090
Pennsylvania Public
Utility Commission
Philadelphia Gas Works
April 2004
Pennsylvania Office of
Small Business Advocate
Cash receipts reconciliation clause
R-049108
Pennsylvania Public
Utility Commission
National Fuel Gas
Distribution
March 2004
Pennsylvania Office of
Small Business Advocate
Uncollectible cost responsibility for
standby charges
Application
1306819
Alberta Energy and
Utilities Board
ENMAX Power Corporation
January 2004
Calgary Industrial Group
Calgary Building Owners
T&D cost allocation, rate design,
ratepayer equity funding
R-3492-2002
Phase 2
Régie de l'Énergie,
Québec
Hydro Québec Distribution
November 2003
AQCIE, CIFQ
Rate policy, cross-subsidization
R-038168
Pennsylvania Public
Utility Commission
National Fuel Gas
Distribution
Pennsylvania Office of
Small Business Advocate
Cost allocation, deficiency assignment,
rate design, pension cost
reconciliation, rate of return
R-3492-2002
Phase 1
Régie de l'Énergie,
Québec
Hydro Québec Distribution
AQCIE, AIFQ
Cost allocation; maintenance of
historical cross-subsidization
July 2003
January 2003
April 2008
Industrial Economics, Incorporated
2067 Massachusetts Avenue
Cambridge, MA 02140 USA
617.354.0074 | 617.354.0463 fax
www.indecon.com
4
EXHIBIT IEc-2
UPDATED ANALYSIS OF HQP DEFERRAL
VERSUS RESALE SCENARIOS
BASE CASE
Evidence of Robert D. Knecht
Docket No. R-3648-2007
Docket R-3673-2008
Evidence of Robert D. Knecht
EXHIBIT IEc-2
ECONOMIC ANALYSIS OF HQP CONTRACT MODIFICATIONS: UPDATE of R-2007-3648 ANALYSIS
SCENARIO: UPDATED BASE CASE
2008
2009
2010
2011
Scenario With Load Deferral
HQP Contract TWh
Base TWh
Cycle TWh
5.3
3.1
2.2
5.3
3.1
2.2
5.3
3.1
2.2
5.3
3.1
2.2
Total TWh Deferred
Base TWh Deferred
Cycle TWh Deferred
TWh Supplied
Cumulative TWh
1.9
1.9
1.9
1.9
1.9
3.8
3.3
3.1
0.2
7.1
2.5
2.5
9.6
9.6
2.0% $ 50.04 $ 51.04
2.0% $ 53.83 $ 54.91
1.2
1.2
2.2
2.2
1,213
177
180
177
357
177
346
876
6.44%
$ 52.06
$ 56.00
2.0
110
466
443
$ 53.10
$ 57.12
0.6
2.2
155
621
571
$ 54.16
$ 58.27
-
HQP Base Price
HQD Cycle Price
Net HQP Base TWh
HQD Cycle TWh
Cost HQP Supplies
Cumulative Cost
Cumulative NPV
2008 NPV
2012
621
571
Scenario Without Load Deferral
HQP Base Supplies
3.1
3.1
3.1
3.1
HQP Cycle Supplies
2.2
2.2
2.2
2.2
HQP Supplies
5.3
5.3
5.3
5.3
277
282
288
HQP Cost
272
Resold TWh
1.9
1.9
3.3
2.5
Resale Price
$ 83.57 $ 67.70 $ 69.61 $ 69.15 $ 80.79
(159)
(129)
(230)
(173)
Resale Revenue
Long Term Supplies
L-T Supply Price
2.0%
L-T Cost
Total Cost
1,432
113
148
53
115
113
261
314
429
429
Cumulative Cost
113
252
299
394
394
Cumulative NPV
911
6.44%
2008 NPV
Cost Difference
Cum. NPV Difference
220
36
(63.7)
(63.7)
(31.7)
(93.4)
(57.0)
(143.7)
(40.1)
(177.0)
(177.0)
2013
2014
2015
2016
2017
2018
2019
2020
1.3
7.9
2.2
5.7
3.2
2.5
2.5
-
-
-
-
9.6
9.6
9.6
0.4
9.2
$ 55.25 $ 56.35
$ 59.43 $ 60.62
0.4
(0.4)
(2)
620
620
570
570
$ 57.48
$ 61.83
-
$ 58.63
$ 63.07
0.4
$ 59.80
$ 64.33
1.3
$ 61.00
$ 65.62
2.2
$ 62.22
$ 66.93
3.2
$ 63.46
$ 68.27
2.5
620
570
23
643
584
78
721
629
134
855
700
199
1,054
801
159
1,213
876
$ 82.41
$ 84.06
$ 85.88
$ 87.72
$ 89.61
$ 91.53
$ 93.50
$ 95.50
$ 93.47
429
394
$ 95.34
429
394
$ 97.25
429
394
0.4
$ 99.19
39.7
40
469
418
1.3
$ 101.17
131.5
132
600
493
2.2
$ 103.20
227.0
227
827
615
3.2
$ 105.26
336.8
337
1,164
784
2.5
$ 107.37
268.4
268
1,432
911
1.7
(175.8)
(175.8)
(175.8)
16.2
(165.9)
53.8
(135.3)
92.8
(85.5)
137.7
(16.2)
109.8
35.7
14 August 2008
EXHIBIT IEc-3
UPDATED ANALYSIS OF HQP DEFERRAL
VERSUS RESALE SCENARIOS
SENSITIVITY ANALYSIS: LOWER AVOIDED COST
Evidence of Robert D. Knecht
Docket No. R-3644-2007
Docket R-3673-2008
Evidence of Robert D. Knecht
ECONOMIC ANALYSIS OF HQP CONTRACT MODIFICATIONS: UPDATE of R-2007-3648 ANALYSIS
SCENARIO: LOWER AVOIDED COST ($75 PER MWh)
2008
2009
2010
2011
Scenario With Load Deferral
HQP Contract TWh
Base TWh
Cycle TWh
5.3
3.1
2.2
5.3
3.1
2.2
5.3
3.1
2.2
5.3
3.1
2.2
Total TWh Deferred
Base TWh Deferred
Cycle TWh Deferred
TWh Supplied
Cumulative TWh
1.9
1.9
1.9
1.9
1.9
3.8
3.3
3.1
0.2
7.1
2.5
2.5
9.6
9.6
2.0% $ 50.04 $ 51.04
2.0% $ 53.83 $ 54.91
1.2
1.2
2.2
2.2
1,213
177
180
177
357
177
343
821
8.00%
$ 52.06
$ 56.00
2.0
110
466
437
$ 53.10
$ 57.12
0.6
2.2
155
621
561
$ 54.16
$ 58.27
-
HQP Base Price
HQD Cycle Price
Net HQP Base TWh
HQD Cycle TWh
Cost HQP Supplies
Cumulative Cost
Cumulative NPV
2008 NPV
Scenario Without Load Deferral
HQP Base Supplies
HQP Cycle Supplies
HQP Supplies
HQP Cost
Resold TWh
Resale Price
Resale Revenue
Long Term Supplies
L-T Supply Price
$ 75.00
L-T Cost
Total Cost
1,318
Cumulative Cost
Cumulative NPV
780
2008 NPV
Cost Difference
Cum. NPV Difference
105
(42)
2012
621
561
2013
2014
2015
2016
2017
2018
2019
2020
1.3
7.9
2.2
5.7
3.2
2.5
2.5
-
-
-
-
9.6
9.6
9.6
0.4
9.2
$ 55.25 $ 56.35
$ 59.43 $ 60.62
0.4
(0.4)
(2)
620
620
559
559
$ 57.48
$ 61.83
-
$ 58.63
$ 63.07
0.4
$ 59.80
$ 64.33
1.3
$ 61.00
$ 65.62
2.2
$ 62.22
$ 66.93
3.2
$ 63.46
$ 68.27
2.5
620
559
23
643
572
78
721
611
134
855
673
199
1,054
758
159
1,213
821
$ 82.81
429
387
$ 86.15
429
387
0.4
$ 87.87
35.1
35
464
406
1.3
$ 89.63
116.5
117
581
464
2.2
$ 91.42
201.1
201
782
557
3.2
$ 93.25
298.4
298
1,080
685
2.5
$ 95.12
237.8
238
1,318
780
3.1
3.1
3.1
3.1
2.2
2.2
2.2
2.2
5.3
5.3
5.3
5.3
277
282
288
272
1.9
1.9
3.3
2.5
$ 83.57 $ 67.70 $ 69.61 $ 69.15
(159)
(129)
(230)
(173)
$ 81.18
113
113
113
8.00%
148
261
250
(63.7)
(63.7)
(31.7)
(93.0)
53
314
295
(57.0)
(141.9)
115
429
387
(40.1)
(173.7)
429
387
(173.7)
1.7
(172.6)
$ 84.46
429
387
(172.6)
(172.6)
11.7
(166.3)
38.8
(146.9)
66.9
(115.9)
99.3
(73.3)
79.1
(41.8)
14 August 2008
EXHIBIT IEc-4
UPDATED LONG-RUN ELECTRICITY
REPLACEMENT COST ANALYSIS
Evidence of Robert D. Knecht
Docket No. R-3644-2007
Docket R-3673-2008
Evidence of Robert D. Knecht
EXHIBIT IEc-4
Estimate of Fully Loaded Combined Cycle
Cost per KWh: @ 10 August 2008
For 2016 - 2020
Low Scenario
Delivered Gas Cost
Average $2008 HH Price
AECO Differential
AECO-Dawn Differential
Firm Transport to Quebec
Gas Cost
$
$
$
$
$
EIA Parameters for Conv. Gas/Oil CC
Heat Rate (Btu/kWh)
Overnight Capital Cost $2005/kW
Variable O&M 2005$/MWh
Fixed O&M 2005 $/kW
$
$
$
Other Assumptions
Assumed Capacity Factor
US GNP Deflator 10/04 to 10/07
Capital Recovery Factor
Calculations
Fixed $2008 per kW
Fixed $2008 per MWh
Gas $2008 per MWh
Fully Loaded CC Cost
7.45
(0.70)
1.20
0.18
8.13
6,800
603.00
1.94
11.75
Base
$
$
$
$
$
$
$
$
80%
8.9%
12.4%
$
$
$
$
94.24
13.45
55.31
68.76
7.45
(0.70)
1.60
0.30
8.65
6,800
603.00
1.94
11.75
High Scenario
$
$
$
$
$
$
$
$
80%
8.9%
15.0%
$
$
$
$
111.31
15.88
58.85
74.73
10.85
(1.20)
1.60
0.30
11.55
7,493
1,185.00
2.77
18.72
80%
8.9%
16.2%
$
$
$
$
229.48
32.75
86.54
119.29
14 August 2008
EXHIBIT IEc-5
SUMMARY OF HQD ECONOMIC ANALYSIS
SUSPENSION VERSUS FULL RESALE
SCENARIOS
Evidence of Robert D. Knecht
Docket No. R-3644-2007
Docket R-3673-2008
Evidence of Robert D. Knecht
EXHIBIT IEc-5
IEc SUMMARY OF HQD FILED ECONOMIC ANALYSIS: SUSPENSION VERSUS FULL RESALE
Net Surplus Before Suspension
TCE Variable Cost
Supplementary Purchases
Net Resale Revenues
TCE Fixed Cost
Total
Net Benefit of Suspension
Avoided Losses on Resale
Incremental Cost of Supplementary Purchases
Resale Scenario (Without Suspension)
TWh
$/MWh
1.8
4.3 $
67
0.1 $
70
(6.2) $
64
-
$MM
290
7
(399)
74
(28)
Suspension Scenario
TWh
$/MWh
1.8
0.5 $
82
(2.3) $
68
-
3.9
0.4
$MM
41
(157)
74
(42)
14
21
(7)
14 August 2008
EXHIBIT IEc-6
SUMMARY OF HQD ECONOMIC ANALYSIS
SUSPENSION VERSUS DEFERRAL/RESALE
SCENARIOS
Evidence of Robert D. Knecht
Docket No. R-3644-2007
Docket R-3673-2008
Evidence of Robert D. Knecht
EXHIBIT IEc-6
ECONOMIC ANALYSIS OF SUSPENSION SCENARIO VERSUS DEFERRAL/RESALE SCENARIO
SCENARIO: UPDATED BASE CASE
Scenario With Suspension of TCE
Energy Balance
Energy Deferred
Energy Returned
Cumulative
Net Purchases from HQP
Other Purchases
Resale
Costs
Purchases from HQP
Per MWh
Other Purchases
Per MWh
Resale
Per MWh
Unrecovered Transport Costs
Suspension Cost
Cost HQP Supplies
2008 NPV
4,594
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
1.9
1.9
3.3
2.5
1.9
3.8
7.1
9.6
9.6
9.6
9.6
9.6
0.4
9.2
1.3
7.9
2.2
5.7
3.2
2.5
2.5
-
3.4
0.4
(1.0)
3.4
0.5
(0.5)
2.0
0.6
(0.8)
2.8
1.5
(0.4)
5.3
2.4
(1.6)
5.3
2.8
(1.3)
5.3
3.1
(1.3)
5.3
3.6
(1.0)
5.7
4.7
(0.9)
6.6
4.7
(0.7)
7.5
5.2
(0.6)
8.5
5.7
(0.6)
7.8
7.8
(0.3)
294
56 $
224
91.64 $
(130)
80.79 $
1.3
300
57 $
263
93.47 $
(107)
82.41 $
1.1
174
180
106
151
52 $
54 $
54 $
55 $
39
48
48
120
$ 96.71 $ 87.31 $ 79.50 $ 79.08 $
(81)
(33)
(58)
(29)
$ 83.57 $ 67.70 $ 69.61 $ 69.15 $
1.0
0.4
0.7
0.3
74
133
269
97
242
6.50%
$
389
457
306
312
345
403
465
539
513
58 $
59 $
61 $
62 $
62 $
64 $
66
292
351
470
473
541
602
842
95.34 $ 97.25 $ 99.19 $ 101.18 $ 103.20 $ 105.26 $ 107.37
(110)
(88)
(81)
(63)
(55)
(52)
(30)
84.06 $ 85.88 $ 87.72 $ 89.61 $ 91.53 $ 93.50 $ 95.50
1.1
0.8
0.8
0.6
0.5
0.4
0.3
489
576
735
814
952
1,089
1,325
Resale/Defer Scenario
14 August 2008
EXHIBIT IEc-7
SENSITIVITY OF HQD ECONOMIC ANALYSIS
SUSPENSION VERSUS DEFERRAL/RESALE
SCENARIOS
LOWER RESALE PRICE AND
LOWER REPLACEMENT COST
Evidence of Robert D. Knecht
Docket No. R-3644-2007
Docket R-3673-2008
Evidence of Robert D. Knecht
EXHIBIT IEc-7
ECONOMIC ANALYSIS OF SUSPENSION SCENARIO VERSUS DEFERRAL/RESALE SCENARIO
SCENARIO: REVISED 2009 RESALE PRICE; LOWER AVOIDED COST
Scenario With Suspension of TCE
Energy Balance
Energy Deferred
Energy Returned
Cumulative
Net Purchases from HQP
Other Purchases
Resale
Costs
Purchases from HQP
Per MWh
Other Purchases
Per MWh
Resale
Per MWh
Unrecovered Transport Costs
Suspension Cost
Cost HQP Supplies
2008 NPV
4,594
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
1.9
1.9
3.3
2.5
1.9
3.8
7.1
9.6
9.6
9.6
9.6
9.6
0.4
9.2
1.3
7.9
2.2
5.7
3.2
2.5
2.5
-
3.4
0.4
(1.0)
3.4
0.5
(0.5)
2.0
0.6
(0.8)
2.8
1.5
(0.4)
5.3
2.8
(1.6)
5.3
3.2
(1.3)
5.3
3.5
(1.3)
5.3
4.1
(1.0)
5.7
5.3
(0.9)
6.6
5.3
(0.7)
7.5
5.9
(0.6)
8.5
6.5
(0.6)
7.8
8.9
(0.3)
294
56 $
224
81.18 $
(130)
80.79 $
1.3
300
57 $
263
82.81 $
(107)
82.41 $
1.1
174
180
106
151
52 $
54 $
54 $
55 $
39
48
48
120
$ 96.71 $ 87.31 $ 79.50 $ 79.08 $
(81)
(33)
(58)
(29)
$ 83.57 $ 67.70 $ 69.61 $ 69.15 $
1.0
0.4
0.7
0.3
74
133
269
97
242
6.50%
$
389
457
306
312
345
403
465
539
513
58 $
59 $
61 $
62 $
62 $
64 $
66
292
351
470
473
541
602
842
84.46 $ 86.15 $ 87.87 $ 89.63 $ 91.42 $ 93.25 $ 95.12
(110)
(88)
(81)
(63)
(55)
(52)
(30)
84.06 $ 85.88 $ 87.72 $ 89.61 $ 91.53 $ 93.50 $ 95.50
1.1
0.8
0.8
0.6
0.5
0.4
0.3
489
576
735
814
952
1,089
1,325
Resale/Defer Scenario
14 August 2008