Hydro
Quebec
Application R-3677-2008
Distribution
TREATMENT OF RESALE ACCORDING TO HOURLY COST METHOD FOR
POST-HERITAGE SUPPLY
Original: 2008-08-01
1
HQD-11, Document 4
Bundled
Treatment of resale by hourly cost method
22 May 2008
Hydro
Quebec
Application R-3677-2008
Distribution
2
Treatment of resale by hourly cost method
22 May 2008
Hydro
Quebec
Application R-3677-2008
Distribution
Treatment of resale according to the hourly cost method for post-heritage
supply
22 May 2008
3
Treatment of resale by hourly cost method
22 May 2008
Hydro
Quebec
Application R-3677-2008
Distribution
Background
♦
Rate case R-3610-2006 (D-2007-12):
•
The Régie found that the hourly method provides for matching
between the different supply plan products and the consumption
characteristics of each customer class.
•
♦
The Régie asked the Distributor to modify its allocation method for
post-heritage electricity supply costs and to use an hourly method with
which to associate, hour by hour, the electricity supply costs to the
different customer classes.
Rate case R-3644-2007:
•
Observations made by interveners:
•
The hourly method as applied produces results that are
incompatible from one year to the next. The post-heritage
cost for rate L (high load factor) is higher. Cost signal: LF,
cost; LF, cost.
•
The net cost for resale of surplus appears to be
overallocated to the residential segment, violating the
principle of cost causation.
•
The Distributor specified that the results (high costs during trough
periods and lower costs during peak periods) arose from the lack of
a power cost signal in the hourly cost method, and that resale only
amplified the situation.
•
The Régie requested (D-2008-24, p. 79) that treatment of resale in
establishing the cost allocation for post-heritage electricity by the
hourly method be examined in further detail during an information
session.
♦
Supply plan, case R-3648-2007, phase 1:
•Delay of contracts with HQP (pending decision) to reduce the quantity
of electricity to be resold given the short-term situation.
4
Treatment of resale by hourly cost method
22 May 2008
Hydro
Quebec
Application R-3677-2008
Distribution
Observations on post-heritage costs in rate case R-3644-2007
Post-heritage requirements
M
2008 (R-3644-2007)
W
2
500
2
00
M
W
Resale profile for projected
test year 2008
2
50
0
2
00
MW
LT and CT purchase profile for
projected test year 2008
2 500
2
00
0 1
¢/k
5
Hourly cost of LT and CT for
projected test year 2008
Treatment of resale by hourly cost method
22 May 2008
Hydro
Quebec
Application R-3677-2008
Distribution
Wh
18,
0
16,
0
14,
Post-heritage requirements 2008 (R-3644-2007)
¢/k
Wh
18,
0
16,
0
Hourly price of resale for projected test year 2008
¢/k
Wh
18,
0
16,
0
14,
0
12,
0
10,
0
6
Treatment of resale by hourly cost method
22 May 2008
Hydro
Quebec
Application R-3677-2008
Distribution
Illustration of post-heritage electricity cost breakdown for projected test year
2008
Customer
class
Hourly method
Unit cost
(cents/kWh)
A- Cost of
purchases
without
surplus
(post-heritage
profile)
B- Implicit
cost of
surpluses
C- Total cost
of purchases
(post-heritage
profile before
resale)
D- Resale
revenues
(Profile of
surpluses)
E- Cost of
post-heritage
supply (postheritage
profile)
F- Net cost of
resale
surpluses
Energy
(GWh)
Domestic
Small and
medium
power
Large power
Total
Domestic
Small and
medium
power
Large power
Total
Domestic
Small and
medium
power
Large power
Total
Domestic
Small and
medium
power
Large power
Total
Domestic
Small and
medium
power
Large power
Total
Domestic
Small and
medium
power
Large power
Total
Known data
7
Treatment of resale by hourly cost method
22 May 2008
Cost (M$)
Hydro
Quebec
Application R-3677-2008
Distribution
Considerations and observations
♦ The cost signal observed with the hourly method (higher unit costs for
customers with high load factor and lower unit costs for customers
with low load factor) does not result from the inclusion of resale
revenues but from the power and energy cost signal initially
considered for allocation of the total post-heritage costs to the
customer classes.
♦ Since the beginning of post-heritage electricity purchases, resale has
been an integral part of the methods used by the Distributor to ensure
the security of supply.
♦ Although it is more significant at present, resale results from
situations of supply/demand imbalance, or surpluses.
♦ Resale implicitly presupposes a cost of electricity over and
above the supply volumes required to balance supply with
demand.
♦ What is the value of the surplus cost and the resale revenues for
each customer class?
•
The only known data is the value of total resale (market price)
which should be an indicator of the surplus costs.
•
Any other value attributed to the surplus entails a gain or a loss
with respect to resale for a given consumption profile.
•
The value assigned to the surplus for each customer class
depends on the allocation method (hourly method) and its
power and energy cost signal.
♦
8
The hourly cost allocation method for the entirety of the postheritage costs implicitly allocates volumes and costs/revenues of
surplus/resale pro rata to each surplus/resale hour for each
customer class.
Treatment of resale by hourly cost method
22 May 2008