RÉGIE DE L’ÉNERGIE
HYDRO-QUÉBEC DISTRIBUTION’S APPLICATON
FOR APPROVAL OF THE
PROPOSED 2005-2014 SUPPLY PLAN
FILE R-3550-2004
EVIDENCE OF WILLIAM HARPER
ECONALYSIS CONSULTING SERVICES
ON BEHALF OF:
OPTION CONSOMMATEURS
MAY 25, 2005
Table of Contents
1
Background ...........................................................................................................................1
2
Purpose of Evidence............................................................................................................4
3
HQD’s Load Forecast ..........................................................................................................6
4
3.1
HQD’s Expected Sales Forecast ...............................................................................6
3.2
HQD’s Expected Energy Requirements .................................................................12
3.3
HQD’s Expected Power Requirements...................................................................14
3.4
Load Forecast Sensitivity..........................................................................................15
3.5
Conclusions .................................................................................................................18
HQD’s Supply Requirements ...........................................................................................20
4.1
4.1.1
Energy Requirements ........................................................................................20
4.1.2
Capacity Requirements .....................................................................................23
4.2
Heritage Pool S upply .................................................................................................26
4.2.1
Total Supply Available .......................................................................................26
4.2.2
Heritage Pool Dispatch......................................................................................27
4.3
Needs in Excess of the Heritage Pool ....................................................................33
4.4
Post Heritage Pool Supplies Currently Under Contract/Planned .......................36
4.4.1
Existing Contracts ..............................................................................................36
4.4.2
Planned Contracts..............................................................................................37
4.5
Additional Supplies Required ...................................................................................40
4.5.1
Energy and Capacity .........................................................................................40
4.5.2
Types of Capacity Required .............................................................................42
4.6
5
Total Supply Requirements ......................................................................................20
Conclusions .................................................................................................................44
HQD’s 2005-2014 Supply Strategy and Plans ..............................................................47
5.1
Near Term (2005-2008).............................................................................................47
5.1.1
Inter-Tie Capability .............................................................................................48
5.1.2
Mix of Market Purchases...................................................................................52
5.1.3
Conclusions .........................................................................................................53
5.2
Longer Term (2009-2014) .........................................................................................55
6
5.2.1
Available Supply Options ..................................................................................55
5.2.2
HQD’s Long Term Supply Strategy .................................................................61
5.2.3
Conclusions .........................................................................................................71
Issues From Previous Régie Decisions ..........................................................................74
6.1
Evaluation of Transmission Costs for Small Scale Plants ...................................74
6.2
Evaluation of Transmission Costs ...........................................................................75
6.3
Contract Term .............................................................................................................76
Appendix A: CV for ECS Consultant………………………………………………………..77
Evidence of
William Harper
1
1
Hydro-Québec Distribution
Régie File R-3550-2004
Background
2
3
On November 1, 2004, Hydro-Québec Distribution (HQD) filed an application with the
4
Régie de l’énergie (the Régie) requesting approval of its 2005-2014 Electricity Supply
5
Plan. This is the second such plan HQD has submitted to the Régie since the
6
restructuring of Hydro-Québec, the establishment of the Heritage Pool and the
7
amendments to the Loi sur la Régie de l’énergie. As a result of these changes, HQD is
8
required to submit a Supply Plan every three years for full review by the Régie and an
9
annual update in each of the intervening years.
10
11
HQD’s first supply plan (the 2002 Plan) was submitted to the Régie in October 2001.
12
Following a two -phased hearing process, the Régie eventually approved 1 HQD’s plan
13
which called for the acquisition of 600 MW/4.1 TWh of baseload capacity and 400 MW
14
of modulable supply commencing in 2006-2007. In addition, the Régie approved the
15
acquisition of an additional 600 MW of supply to meet the loads of the Alouette
16
aluminium plant expansion with deliveries commencing in 2005. HQD’s 2002 Plan also
17
called for: a) the use of short-term contracts to address any supply shortfalls prior to the
18
in-service of the new capacity and to address fluctuations in load d ue to normal weather
19
variations and b) an agreement with Hydro-Québec Production (HQP) to manage
20
extreme, short-term load variations due to abnormal weather conditions or supply failure
21
and involuntary overages due to the dispatch of the Heritage Pool without going through
22
a formal tendering process 2. Following the development of the 2002-2011 Supply Plan
23
and its approval by the Régie, HQD received further advice and direction from both the
24
Régie and the Québec government concerning the acquisition of future supplies:
•
25
In March 2003, the government directed HQD to solicit 1000 MW of new supplies
from wind power and an additional 100 MW of new supply from biomass 3.
26
•
27
In December 2003, the government directed HQD to acquire 800 MW of supply
via cogeneration4.
28
1
2
3
D-2002-17, Phase 1 and D-2002-169, Phase 2
R-3470-2001, HQD-2, Document 3, page 33
HQD-1, Document 2, page 6
1
Evidence of
William Harper
•
1
Hydro-Québec Distribution
Régie File R-3550-2004
Following the Régie’s June 2004 report5 to Québec government regarding
2
Québec’s Electricity Energy Security and the Suroît project, HQD cancelled 6, at
3
the direction on the provincial government, its plans to construct the Suroît
4
project (an 836 MW gas-fired combined cycle plant).
5
Consistent with its 2002-2011 Supply Plan and subsequent approvals/directions, HQD
6
has initiated the following supply-related activities over the past three years:
•
7
In February 2002, HQD initiated a call for tender (A/O 2002-01) for 600 MW of
8
supply for delivery starting in 2006. This eventually led to HQD entering into
9
three contracts for a total of 1107 MW and 8.2 TWh per annum 7, with deliveries
10
starting in 2006 and 2007.
•
11
In April 2003, HQD initiated a call for tender (A/O 2003-01) for 100 MW of supply
12
from biomass. This eventually led to HQD entering into two contracts for a total
13
of 39.4 MW of supply8 with deliveries starting in 2006.
•
14
In May 2003, HQD initiated a call for tender (A/O 2003-02) for 1,000 MW of
15
supply from wind energy. This eventually led to HQD entering into 9 contracts for
16
a total of 990 MW of wind power supply9 with deliveries starting in 2006.
•
17
In April 2004, HQD initiated a call for tender (A/O 2004-01) for 250 MW for the
18
period January 1 to December 31, 2005. The successful contractor – the
19
Constellation Group – was announced in May 2004 10.
•
20
In October 2004, HQD initiated a call for tender (A/O 2004-02) for 350 MW of
21
supply from cogeneration11. The associated energy supply would be 2.8 TWh
22
per annum 12 and deliveries are assumed to start in 2008.
•
23
In October 2004, HQD initiated a call for tender (A/O 2004-03) for 100-400 MW
24
of short-term supply for 2005. In November 2004, HQD entered into contracts for
25
the supply of 800 GWh over the period January to April 2005 13.
4
HQD-1, Document 2, page 7
A-2004-01
6
Press Release, Ministère des Ressources naturelles, Québec, November 17, 2004
7
HQD-1, Document 2, page 7
8
HQD-1, Document 2, pages 7-8
9
HQD-1, Document 2, pages 9-10
10
HQD-5, Document 6, page 3, Response 2.1
11
HQD-1, Document 2, page 10
12
HQD-3, Document 3, page 5
5
2
Evidence of
William Harper
•
1
Hydro-Québec Distribution
Régie File R-3550-2004
In November 2004, HQD initiated another call for tender (A/O 2004-04) for 900
GWh of short term firm supply for 2005 14.
2
3
4
The current 2005-2014 Supply Plan proposed by HQD foresees the need for additional
5
energy supplies over and above those currently contracted for or being acquired for the
6
years 2006-2014 inclusive and, similarly, additional power supply requirements for
7
2005-2006 and beyond 15. The Plan calls for the needs through 2008 to be met primarily
8
by short-term purchases. For the period 2009-2014, the Plan calls for the additional
9
supplies to come from a second call for tender (CFT) for wind energy; a CFT for
10
modulable supply; followed by a another CFT for supply from cogeneration; with any
11
remaining balance to be made up through short-term purchases 16.
12
13
On November 11, 2004 the Régie issued a procedural order (D-2004-240/R-3550-2004)
14
to initiate a public review of HQD’s Application for approval of the 2005-2014 Supply
15
Plan.
13
14
15
16
HQD-1, Document 2, page 10 and HQD-5, Document 6, page 4, Response 3.1
R-3558-2005, HQD-1, Document 1, page 13
HQD-3, Document 3, pages 5-6.
HQD-1, Document 1, pages 5-6.
3
Evidence of
William Harper
1
2
Hydro-Québec Distribution
Régie File R-3550-2004
Purpose of Evidence
2
3
After reviewing HQD’s Application and the Procedural Order issued by the Régie,
4
Option consommateurs (OC) retained Econalysis Consulting Services (ECS), a
5
Canadian consulting firm offering regulatory services to clients o n the electricity and
6
natural gas matters, to provide evidence that would assist the Régie in evaluating the
7
issues associated with HQD’s new Supply Plan.
8
9
The Evidence was prepared by Bill Harper who, prior to joining ECS in July 2000,
10
worked for over 25 years in the energy sector in Ontario, first with the Ontario Ministry of
11
Energy and then, with Ontario Hydro and its successor company Hydro One. Since
12
joining ECS, he has assisted various clients participating in regulatory proceedings on
13
issues related to electricity and natural gas utility revenue requirements, cost
14
allocation/rate design a nd supply planning. Mr. Harper has served as an expert witness
15
in public hearings before the Manitoba Public Utilities Board, the Manitoba Clean
16
Environment Commission, the Régie, the Ontario Energy Board, the Ontario
17
Environmental Assessment Board and a Select Committee of the Ontario Legislature on
18
matters dealing with electricity regulation, rates and supply planning. His most recent
19
experience with supply planning matters includes:
•
20
The preparation of comments/evidence and appearance as an expert witness on
21
behalf of OC in the Régie proceeding (R-3470-2001) dealing with HQD’s 2002-
22
2011 Supply P lan.
•
23
The preparation of evidence 17 and appearance as a n expert witness before the
24
Manitoba Clean Environment Commission with respect to its review of the Need
25
for and Alternatives to the Wuskwatim Hydro Generation/Transmission project
26
proposed by Manitoba Hydro. Mr. Harper’s responsibilities included review and
27
comment on: a) Manitoba Hydro’s supply/demand outlook and the need for the
28
additional supply, b) Manitoba Hydro’s levelized costing methodology used for
29
screening alternatives to Wuskwatim, c) the methodology used by Manitoba
17
The evidence was jointly prepared by Mr. Harper and Dr. Higgin.
4
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Hydro to evaluate the economics and benefits of the Wuskwatim project and d)
2
the economic, financial and operational risks associated with the project.;
3
•
4
Providing expert advice and support to clients in British Columbia participating in
the BCUC proceedings dealing with:
5
o The electricity demand/supply outlook for Vancouver Island and the
6
proposed Electricity Purchase Agreement between BC Hydro and Duke
7
Point Power,
8
o The natural gas demand/supply outlook for Vancouver Island and the
9
Terasen Gas (Vancouver Island) application for Liquified Natural Gas
10
Storage Facilities to increase peak supply capability to the Island , and
11
o BC Hydro’s proposed 2005 Resource Expenditure and Acquisition Plan
12
(i.e., BC Hydro’s proposed 2005 Electricity Supply Plan).
13
14
A full copy of Mr. Harper’s CV is attached in Appendix A.
15
16
The evidence generally follows the structure of HQD’s Application and, in turn,
17
considers HQD’s load forecast; overall needs (allowing for reliability and reserve
18
considerations ); existing (and currently planned) supplies; the strategy for acquisition of
19
additional supply requirements and issues arising from previous Régie decisions. In
20
doing so the evidence attempts to build on the findings of previous Régie proceedings
21
by looking at changes from both:
22
•
23
24
The 2002-2011 Supply Plan and the resulting Régie decision (D-2002-17 and D2002-169) and
•
The 2003 Plan Update which was the basis for the Régie’s report (A-2004-01) to
25
the Minister of Natural Resources on Québec’s energy security and the Suroît
26
project.
5
Evidence of
William Harper
1
3
Hydro-Québec Distribution
Régie File R-3550-2004
HQD’s Load Forecast
2
3
3.1
HQD’s Expected Sales Forecast
4
5
Based on the most likely economic and demographic outlook and currently planned
6
energy efficiency initiatives, HQD’s load forecast18 calls for electricity energy sales to
7
customers to increase from 165.7 TWh in 2003 to 184.8 TWh in 201419.
8
9
In its Decision regarding HQD’s first Supply Plan, the Régie indicated that it generally
10
accepted HQD’s medium (or expected) load forecast for planning purposes 20. However,
11
in its 2004 report to the Minister of Natural Resources (A-2004-01), the Régie
12
recommended that a medium -high growth scenario be used for planning purposes.
13
14
Table 1 contrasts HQD’s current load forecast with the load forecasts underpinning its
15
2002-2011 Supply Plan, its 2003 Supply Plan Update and the medium-high growth
16
scenario recommended by the Régie in A-2004-01.
Table 1
Comparison of Load Forecasts (Sales to Customers in TWh)
2001
2002
2003
2004
2005
2006
2007
2006
2009
2010
2011
2012
2013
2014
Source:
- 2005-2014 Plan
154.5
159.2
165.7
164
169.3
173.1
175.3
177.7
178.8
180.1
181.2
182.9
183.6
184.8
- 2002-2011 Plan
Difference
154.6
-0.1
156.7
2.5
160.2
5.5
163.8
0.2
165.5
3.8
167.2
5.9
168.8
6.5
170.8
6.9
171.7
7.1
173.2
6.9
174.6
6.6
n/a
n/a
n/a
- 2003 Plan Update
Difference
154.5
0
159.2
0
164.2
1.5
166.4
-2.4
169.7
-0.4
173.8
-0.7
175.4
-0.1
177.5
0.2
179.5
-0.7
182.1
-2
184.4
-3.2
n/a
n/a
n/a
164.3
1.4
167.1
-3.1
169.7
-0.4
173.8
-0.7
175.4
-0.1
177.5
0.2
179.5
-0.7
182.1
-2
184.4
-3.2
n/a
n/a
168.8
-4.8
172.7
-3.4
177.5
-4.4
180.2
-4.9
183
-5.3
185.3
-6.5
187.9
-7.8
190.5
-9.3
n/a
n/a
- A-2004-01
HQD's Medium Scenario
Difference
n/a
- A-2004-01
Regie's Medium-High Scenario
Difference
17
18
Source:
n/a
HQD-2, Document 1, pages 20, 26 and 31
A-2004-01, pages 37 and 55
18
Reflects HQD’s medium load forecast scenario based on the most probable values for the various
underlying economic and demographic factors (HQD-2, Document 1, page 16)
19
HQD-2, Document 1, pages 20 and 26 Tables 2.3 and 2.5
20
D-2002-169, page 22
6
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Comments re: Variances from the 2002-2011 Plan
2
3
The current load forecast is considerably higher than that underpinning the 2002-2011
4
Supply Plan. There are a number of reasons for this:
5
6
•
First, actual sales through to 2004 have been significantly higher than projected in
7
2001 when the first Supply Plan was prepared – particularly when allowance is
8
made for the strike in 2004 at the ABI aluminium facility. This is primarily due to
9
exceptional electricity sales growth in both the Residential and Agriculture sector as
10
well as in the General and Institutional sector21. Table 2 contrasts the previously
11
forecast values with the actual values for the main economic and demographic
12
factors underlying the electricity sales in these two sectors 22 and substantiates
13
HQD’s comments attributing the growth to residential construction and strong
14
commercial growth23.
21
22
23
HQD-5, Document 1.1, page 15, Response 3.1
The factors shown are those identified in HQD-5, Document 1.1, page 3, Response 1.1
HQD-5, Document 1.1, page 17, Response 3.1
7
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 2
Demographic and Economic Factors - Forecast vs. Actual Results
2002
2003
2004
7,432
7,446
7,458
7,492
7,483
7,530
Tertiary GDP (Annual Growth Rate)
- 2002-2011 Plan
2.40%
1
- Actual
4.80%
2.70%
2.50%
2.40%
2.70%
24.8
45.0
30.4
46.0
2.30%
0.90%
2.40%
2.10%
5.5
6.85
5.25
7.01
Population (millions)
1
- 2002-2011 Plan
2
- Actual
Household Formation (Thousands)
- 2002-2011 Plan
3
- Actual
26.8
40.0
Disposable Income (Annual Growth)
- 2002-2011 Plan
2.20%
- Actual
3.60%
3
Natural Gas Prices ($/m )
- 2002-2011 Plan
- Actual
Notes:
1) 2002/2011 Plan Values as per R-3470-2011, HQD-2, Doc 1, page 5
2) Actual values are as per HQD-5, Document 1.1, page 30
Acutal values shown for 2004 are the current forecast values per HQD-2, Document 1, page 13.
3) Actual household formation values are calculated from above referenced sources
1
2
3
5.5
4.23
•
Second, the growth rates for the demographic and economic factors underpinning
4
the forecast beyond 2004 are higher in the 2005-2014 Plan than they were in the
5
2002-2011 Plan, as demonstrated in Table 3 below. While differing from that used
6
in the previous plan, HQD’s current economic forecast is in line with those recently
7
prepared by other parties 24.
24
HQD-5, Document 1.1, pages 5-11
8
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 3
Comparison of Economic and Demographic Forecast Assumptions
Population ('000's)
- 2005/14 Plan
- 2002/11 Plan
Difference
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
7530
7483
0.63%
7566
7507
0.79%
7597
7529
0.90%
7628
7551
1.02%
7657
7571
1.14%
7685
7590
1.25%
7713
7608
1.38%
7738
7624
1.50%
7763
n/a
7786
n/a
7808
n/a
5.4
5.1
5.88%
8.2
7.7
6.49%
10.9
10.2
6.86%
13.6
12.7
7.09%
16.4
15.3
7.19%
19.3
17.9
7.82%
22.3
20.7
7.73%
25.0
n/a
27.8
n/a
30.6
n/a
7.16
5.00
43.20%
6.82
5.00
36.40%
6.45
5.05
27.72%
6.24
4.90
27.35%
5.86
5.15
13.79%
5.59
5.40
3.52%
5.55
5.60
-0.89%
5.49
n/a
5.54
n/a
5.79
n/a
GDP (% Cumulative growth)
- 2005/14
3.0
- 2002/11
2.5
Difference
20.00%
3
Natural Gas Prices ($/m )
- 2005/14
7.01
- 2002/11
5.25
Difference
33.52%
Notes:
1) Source for 2005/2014 data: HQD-2, Document 1, page 13
2) Source for 2002/2011 data: R-3470-2001, HQD-2, Document 1, page 5
1
2
3
•
Third, the expansion of the Alouette plant leading to increased sales of 4.3 TWh by
200625.
4
5
However, offsetting these factors are the higher energy efficiency reductions
6
incorporated in the current 2005-2014 Plan. These reductions are the result of including
7
the anticipated impacts of HQD’s 2005-2010 PGEÉ and allowances for natural energy
8
efficiency improvements in the industrial sector 26. The difference in energy efficiency
9
savings assumed for the two plans are summarized in Table 4.
25
26
HQD-5, Document 1.1, page 18.
HQD-5, Document 6, pages 20-21, Response 22.1
9
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 4
Energy Efficiency Assumptions (TWh)
2004
Domestic & Agriculture
2005-2014 Plan
0.9
2002-2011 Plan
1.1
Difference
-18.2%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1.4
1.3
7.7%
1.7
1.3
30.8%
2.2
1.5
46.7%
2.7
1.7
58.8%
3
1.8
66.7%
3.5
2
75.0%
3.9
2.2
77.3%
4
n/a
4.2
n/a
4.4
n/a
G&I
2005-2014 Plan
2002-2011 Plan
Difference
0.5
0.7
-28.6%
0.7
0.8
-12.5%
0.8
0.8
0.0%
1
0.9
11.1%
1.1
0.9
22.2%
1.4
1
40.0%
1.6
1.1
45.5%
1.9
1.2
58.3%
2
n/a
2.1
n/a
2.2
n/a
Industrial
2005-2014 Plan
2002-2011 Plan
Difference
1.6
1.1
45.5%
2
1.1
81.8%
2.4
1.1
118.2%
2.8
1.1
154.5%
3.3
1.1
200.0%
3.6
1.1
227.3%
4.1
1.1
272.7%
4.4
1.1
300.0%
4.7
n/a
5
n/a
5.3
n/a
Other
2005-2014 Plan
2002-2011 Plan
Difference
0.2
0.2
0.0%
0.2
0.2
0.0%
0.2
0.2
0.0%
0.2
0.2
0.0%
0.2
0.2
0.0%
0.2
0.2
0.0%
0.2
0.2
0.0%
0.2
0.2
0.0%
0.2
n/a
0.2
n/a
0.2
n/a
Unallocated
2005-2014 Plan
2002-2011 Plan
Difference
0
0.1
-100.0%
0
0.2
-100.0%
0
0.4
-100.0%
0
0.4
-100.0%
0
0.4
-100.0%
0
0.4
-100.0%
0
0.4
-100.0%
0
0.4
-100.0%
0
n/a
0
n/a
0
n/a
Total
2005-2014 Plan
2002-2011 Plan
Difference
3.2
3.2
0.00
4.3
3.6
0.70
5.1
3.8
1.30
6.2
4.1
2.10
7.3
4.3
3.00
8.2
4.5
3.70
9.4
4.8
4.60
10.4
5.1
5.30
10.9
n/a
11.5
n/a
12.1
n/a
Source: HQD-5, Document 6, pages 20-21, Response 22.1. Totals may differ from reference due to rounding.
1
2
3
Comments re: Variances from the 2003 Update
4
5
Over the period 2005-2011, the electricity sales forecast underpinning the current Plan
6
is less than that associated with the 2003 Plan Update. HQD suggests that the reasons
7
for this are both the lower economic and demographic assumptions and greater energy
8
efficiency savings27 associated with the 2005-2014 Plan.
9
10
Table 5 compares the basic demographic and economic assumptions underlying the
11
two sale forecasts and does not appear to substantiate HQD’s claim that the lower sales
12
forecast in the 2005-2014 Plan is, in part, due to changes in the demographic and
27
HQD-5, Document 6, page 11, Response 12.1
10
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
economic assumptions. Indeed, the current assumptions for core variables such as
2
GDP growth, population growth and household formation all appear to be the same or
3
higher than those used in the 2003 Plan Update.
4
Table 5
Comparison of Economic and Demographic Forecast Assumptions
2004
2005
2006
2007
2008
2009
2010
2011
7,530
7,521
0.1%
7,566
7,546
0.3%
7,597
7,572
0.3%
7,628
7,597
0.4%
7,657
7,621
0.5%
7,685
7,643
0.5%
7,713
7,664
0.6%
7,738
7,684
0.7%
Household Formation (#)
2005-2014 Plan
46.00
2003 Plan Update
35.50
Difference
29.6%
39.00
31.50
23.8%
36.00
31.40
14.6%
34.00
30.50
11.5%
32.00
28.50
12.3%
30.00
27.50
9.1%
30.00
26.50
13.2%
28.00
25.80
8.5%
GDP (% Cumulative growth)
2005-2014 Plan
3
2003 Plan Update
3.2
Difference
-6.3%
5.4
5.5
-1.8%
8.2
8.2
0.0%
10.9
10.9
0.0%
13.6
13.6
0.0%
16.4
16.3
0.6%
19.3
19.1
1.0%
22.3
22
1.4%
Natural Gas Prices ($/m3)
2005-2014 Plan
7.01
2003 Plan Update
5.94
Difference
18.0%
7.16
5.58
28.3%
6.82
4.96
37.5%
6.45
5.05
27.7%
6.24
4.94
26.3%
5.86
5.02
16.7%
5.59
5.17
8.1%
5.55
5.36
3.5%
Population ('000's)
2005-2014 Plan
2003 Plan Update
Difference
Notes:
1) Source for 2005-2014 Plan data: HQD-2, Document 1, page 13
2) Source for 2003 Plan Update data: A-2004-01, page 40
5
6
7
However, there a couple of other key reasons why the current sales forecast is likely
8
lower:
9
•
First, HQD has captured in the current load forecast the impact of the Régie’s recent
10
decision to abrogate the BT rate and the resulting loss of load is expected to be
11
about 1.3 TWh by 201128.
12
•
13
Second, the current forecast captures 29 the recent cancellation of various expansion
projects in the aluminium sector, notably the Alcoa plant at Baie-Comeau.
28
HQD-2, Document 1, page 25
11
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
In the case of energy efficiency savings, Table 6 does support the premise that the
2
savings in the current 2005-2014 Supply Plan exceed those underpinning the 2003 Plan
3
Update.
Table 6
Comparison of Energy Efficiency Savings (TWh)
- 2005-2014 Plan
- 2003 Plan Update
Difference
2004
2005
2006
2007
2008
2009
2010
2011
3.2
3.4
4.1
4.1
5.1
4.9
6.1
5.7
7.2
6.5
8.3
7.3
9.4
8
10.3
8.6
-0.2
0
0.2
0.4
0.7
1
1.4
1.7
Source:
2005-2014 Plan: HQD-2, Document 1, page 37
2003 Plan Update: A-2004-01, page 39
4
5
6
Furthermore, the difference in energy efficiency savings accounts for a substantial
7
portion of the overall variance between the two sales forecasts.
8
9
3.2
HQD’s Expected Energy Requirements
10
11
A number of adjustments are required in order to translate HQD’s electricity sales
12
forecast into a forecast of electricity energy needs for supply planning purposes
13
including:
14
•
15
The exclusion of sales to non-grid connected communities (i.e., remote
communities),
16
•
The inclusion of consumption for internal use, and
17
•
An allowance for losses.
18
Table 7 sets out the calculation of the electricity needs for supply planning purposes
19
associated with the 2005-2014 Supply Plan and contrasts each of the adjustments with
20
the values used in the 2002-2011 S upply Plan.
29
HQD-2, Document 1, page 24
12
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 7
Determination of Energy Requirements for Supply Planning (TWh)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Customer Sales Forecast
- 2005-2014 Plan
164
- 2002-2011 Plan
163.8
Difference
0.2
169.3
165.5
3.8
173.1
167.2
5.9
175.3
168.8
6.5
177.7
170.8
6.9
178.8
171.7
7.1
180.1
173.2
6.9
181.2
174.6
6.6
182.9
n/a
183.6
n/a
184.8
n/a
Less Sales to
Remote Communities
- 2005-2014 Plan
- 2002-2011 Plan
Difference
0.3
0.3
0
0.3
0.3
0
0.3
0.3
0
0.3
0.3
0
0.3
0.3
0
0.3
0.3
0
0.3
0.3
0
0.3
0.3
0
0.3
n/a
0.3
n/a
0.3
n/a
Plus Internal Use
- 2005-2014 Plan
- 2002-2011 Plan
Difference
0.5
0.4
0.1
0.5
0.4
0.1
0.5
0.4
0.1
0.5
0.4
0.1
0.4
0.4
0
0.5
0.4
0.1
0.4
0.4
0
0.4
0.4
0
0.4
n/a
0.3
n/a
0.3
n/a
Plus Losses
- 2005-2014 Plan
- 2002-2011 Plan
Difference
12.5
13.5
-1
12.7
13.7
-1
13
14
-1
13.1
14.2
-1.1
13.3
14.4
-1.1
13.4
14.6
-1.2
13.4
14.8
-1.4
13.5
15
-1.5
13.7
n/a
13.7
n/a
13.8
n/a
182.2
179.3
2.9
186.3
181.3
5
188.5
183.0
5.5
191.1
185.3
5.8
192.3
186.3
6
193.7
188.0
5.7
194.7
189.7
5
196.6
n/a
197.3
n/a
198.6
n/a
Plannning Energy Needs
- 2005-2014 Plan
176.6
- 2002-2011 Plan
177.4
Difference
-0.8
1
2
3
Source:
2005-2014 Plan: HQD-2, Document 1, page 20
2002-2011 Plan: R-3470-2001, HQD-2, Document 1,page 21 and HQD-2, Document 3, page 2
Comments
4
5
From a materiality perspective , the only major change is the allowance for transmission
6
and distribution losses. For the current plan a loss factor of 7.5% was assumed for the
7
entire 2005-2014 period, in contrast to the 2002-2011 Supply Plan which assumed loss
8
factors in excess of 8%. HQD indicates 30 that the 7.5% is based on the experience of
9
the last three years. HQD has indicated 31 in its response to OC’s information requests
10
that “internal use” now captures construction site consumptions whereas formerly it did
11
not. However, the impact of this change is only in the order of 0.1 TWh per annum.
12
30
31
HQD-2, Document 1, page 27
HQD-5, Document 6, pages 15-16, Response 16.2
13
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Overall total expected energy requirements are projected to increase from 178.2 TWh in
2
200332 to 198.6 TWh in 2014 – which represents an average annual growth rate of just
3
under 1.0% 33.
4
5
3.3
HQD’s Expected Power Requirements
6
7
In terms of power requirements, HQD’s peak demand is projected to increase from
8
34,450 MW in 2003-2004 to 37,365 MW in 2013-2014 – which represents an average
9
annual growth rate of just over 0.8% 34. The power requirements forecast is derived35
10
from the expected energy requirements forecast and assumptions regarding the
11
characteristics of the energy use (e.g., space heating, water heating, etc.). Shifts in
12
energy by sector or end use application can lead to differences in growth rates as
13
between energy and power requirements.
14
15
Comments
16
17
Table 8 contrasts the expected power and energy requirements for 2010-2011 under
18
the current plan with those associated with the 2002-2011 Supply Plan and the 2003
19
Plan Update. The currently anticipated power requirements for 2010-2011 exceed
20
those of the original 2002-2011 Plan but are slightly less than those of the 2003 Plan
21
Update, thereby maintaining the same relative relationships as discussed previously
22
regarding the energy requirements for 2011.
32
HQD-5, Document 1.1, page 31, Table R6.1d
2003 was used as the base year for the calculation due to the impact the strike at ABI has on 2004
usage
34
HQD-2, Document 1, pages 21 and 24
35
HQD-2, Document 1, pages 20-21
33
14
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 8
Comparison of Power and Energy Requirements
2005-2014
Plan
2002-2011
Plan
2003 Update
194.7
189.7
198.7
0
-2.57%
2.05%
2010-2011 Req.
36,700
35,680
37,240
Var. from
2005-2014 Plan
0
-2.78%
1.47%
Energy (TWh)
2011 Req.
Var from
2005-2014 Plan
Power (MW)
Source:
HQD-2, Document 1, Tables 2.6, 2.7, 2.9 and 2.10
1
2
3.4
Load Forecast Sensitivity
3
4
Similar to the 2002-2011 Plan, HQD has described the potential sensitivity of the
5
expected energy and power requirements to both the underlying economic and
6
demographic assumptions as well as to variations in weather.
7
8
For the future energy requirements, the sensitivity (based on one standard deviation36)
9
to annual variations in weather is approximately 1.8 TWh and this value is virtually
10
constant throughout the forecast period 37 such that it actually declines as a percentage
11
of total energy requirements. However, the sensitivity (again at one standard deviation)
12
of future requirement to economic and demographic factors increases from 4.6 TWh in
13
2005 to 15.2 TWh in 2014 – which represents an increase both in absolute terms and
36
Assuming a “Normal” probability distribution, there is roughly a 16% probability that the expected value
will be exceeded by more than one standard deviation.
37
HQD-2, Document 1, page 46 and HQD-5, Document 6, page 22, Response 25.1
15
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
as a percentage of total energy requirements 38. Since the two sources of variation are
2
independent of each other, their combined impact on the sensitivity of future energy
3
requirements is less than the sum of two factors and, based on one standard deviation,
4
ranges from 5 TWh in 2005 to 15.3 TWh in 2014. This can be seen from Table 9 which
5
summarizes the sensitivity of the two sources of variation both independently and
6
together.
7
Table 9
Sensitivity Range - One Standard Deviation
2005
2006
2007
2008
2009
2010
2011
1012
2013
2014
4.6
2.5
5.0
2.7
6.2
3.3
7.6
4.0
8.7
4.5
9.7
5.0
11.0
5.7
12.2
6.2
13.7
6.9
15.2
7.7
1.8
1.0
1.8
1.0
1.8
1.0
1.8
0.9
1.8
0.9
1.8
0.9
1.8
0.9
1.8
0.9
1.8
0.9
1.8
0.9
5.0
2.7
5.3
2.8
6.4
3.4
7.8
4.1
8.9
4.6
9.9
5.1
11.2
5.7
12.4
6.3
13.8
7.0
15.3
7.7
Factor
Econ&Demographic
- TWh
-%
Weather
- TWh
-%
Total
- TWh
-%
Source: HQD-2, Document 1, pages 43, 46 and 50
8
9
10
For future power requirements, the sensitivity to economic and demographic factors is
11
roughly the same/perhaps slightly less (in % terms) than for energy. However, as one
12
would expect, the sensitivity of power requirements to variations in weather is greater
13
(in percentage terms) than for energy requirements. Overall the sensitivity (based on
14
one standard deviation) of both factors increases from 4.3% of expected power
15
requirements in 2004-05 to 8.2% of power requirements in 2013-14 39.
38
39
HQD-2, Document 1, page 43
HQD-2, Document 1, page 50
16
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Comments re: Changes from the 2002-2011 Supply Plan
2
3
HQD’s 2002-2011 Supply Plan also included sensitivity analyses with respect to
4
economic and demographic assumptions as well as weather. Table 10 sets out the
5
“coefficients of variation” associated with one-standard deviation attributable to
6
economic and demographic factors in both Plans.
7
Table 10
Energy Coefficient of Variation for Economic and Demographic Factors
Horizon
2002-2011Plan
2005-2014 Plan
3 Years
4 Years
5 Years
6 Years
7 Years
8 Years
9 Years
10 Years
3.4%
3.3%
4.1%
4.0%
4.9%
4.5%
5.5%
5.0%
6.1%
5.7%
6.8%
6.2%
7.4%
6.9%
8.1%
7.7%
Source:
HQD-2, Document 1, page 43
R-3470-2001 Phase II, HQD-6, Document 1, page 13
8
9
10
The sensitivity of the current (2005-2014) Plan is deemed to be slightly less than that of
11
the 2002/11 Plan with respect to these factors.
12
13
In the case of weather, the sensitivity of the 2005-2014 Plan is roughly the same as the
14
previous plan. The 2002-2011 Plan’s sensitivity to weather was 1.9 TWh40 – based on
15
one standard deviation (as compared to 1.8 TWh in the current 2005-2014 Plan).
16
17
Comments re: Régie A-2004-01 Findings
18
19
In its June 2004 Report to the Minister, the Régie concluded41 that sales growth was
20
most likely to fall between the results of sales forecasts based on the medium and the
21
strong economic/demographic growth scenarios. The reasons for this included:
40
41
R-3470-2001, HQD-2, Document 1, page 26
A-2004-01, pages 33-34.
17
Evidence of
William Harper
•
1
2
Hydro-Québec Distribution
Régie File R-3550-2004
The recently observed strong growth in the residential due to significant
increases in construction starts.
3
•
A competitive position of electricity better than forecast for 2004-2005.
4
•
Forecast increases in consumption for the industrial sector over the period,
5
coupled with uncertainty regarding the future industrial expansion, particularly in
6
the aluminium sector.
7
8
Many of these same factors are still present and creating uncertainty with respect to the
9
current sales/requirements forecast:
•
10
Continued strong growth through 2004, this time in the General and Institutional
sectors 42.
11
•
12
13
The Régie just recently approved 43 a distribution rate increase of 1.2% for 2005,
as opposed to the 2.7% originally requested.
•
14
The inclusion of fairly conservative assumptions about future industrial
expansions in the 2005-2014 Plan44.
15
16
As a result, the circumstances continue to exist to support the logic used by the Régie
17
when it adopted a higher than medium sales forecast for planning purposes.
18
19
3.5
Conclusions
20
21
Current Load Forecast
22
23
Overall, HQD’s load forecast appears to be reasonable when considered in terms of the
24
changes observed from both the 2002-2011 Plan and the 2003 Update. However, the
25
same issues the Régie raised in its A-2004-01 Report to the Minister regarding the
26
(upside) uncertainty associated with the load forecast still exist. Therefore, it would be
27
prudent for HQD to either:
42
43
44
HQD-5, Document 1.1, page 17, Response 3.1
D-2005-34
HQD-5, Document 1.1, pages 20-21, Response 3.1
18
Evidence of
William Harper
•
1
2
Hydro-Québec Distribution
Régie File R-3550-2004
Adopt a higher load forecast (e.g., a medium-high forecast such as adopted by
the Régie in A-2004-01) for planning purposes, or
•
3
4
Ensure that the supply plan developed based on the medium load forecast is
sufficiently flexible to meet higher growth scenarios.
5
6
Load Forecast Uncertainty
7
8
Relative to the first (2002-2011) Plan, HQD’s evidence regarding load forecast
9
uncertainty is much better presented, particularly in that it clearly demonstrates the
10
combined effects of both weather and demographic/economic factors. This serves to
11
address the related issues raised45 in the Comments/Evidence prepared by ECS with
12
respect to the 2002-2011 Plan.
45
R-3470-2001 – ECS Comments, December 14, 2001, page 20 and ECS Evidence, March 19, 2002,
page 8.
19
Evidence of
William Harper
1
4
Hydro-Québec Distribution
Régie File R-3550-2004
HQD’s Supply Requirements
2
3
4.1
Total Supply Requirements
4
5
4.1.1 Energy Requirements
6
7
Total energy requirements for purposes of supply planning are based on the energy
8
requirements discussed earlier (see Table 7) plus an allowance to manage the Heritage
9
Pool supplies in real time 46. These later requirements are discussed in more detail in
10
Section 4.2 below.
11
12
HQD has also established 47 a longer term energy reliability criterion which calls for HQD
13
to have sufficient energy supply capability in place such that its dependence on short-
14
term markets beyond a four year horizon is less than 5 TWh per annum under a higher
15
load growth scenario 48. For purposes of this long-term criterion, high load growth is
16
defined as the medium growth scenario plus 7.8 TWh, which is based on one standard
17
deviation for four years forward (currently 2008) 49.
18
19
The 5 TWh is based on the current interconnection capacity that HQD expects to be
20
able to rely on after allowing for both technical and market constraints and also allowing
21
for HQP’s potential need to access the interconnected markets to guarantee the
22
Heritage Pool supplies50.
46
47
48
49
50
HQD-3,
HQD-3,
HQD-3,
HQD-5,
HQD-3,
Document 3, page 5
Document 1, page 6
Document 3, page 15, lines 18-20
Document 6, page 48, Response 61.1
Document 1, page 14. See also Section 5.1.1 below.
20
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Comments
2
3
In its decision regarding HQD’s first Supply Plan, the Régie accepted the energy
4
reliability criteria proposed by HQD which was that HQD demonstrate the ability to meet
5
a strong growth scenario over the entire planning horizon. At the same time, the Régie
6
also directed HQD to propose alternative criteria in conjunction with its next Supply
7
Plan51. The now proposed energy reliability criteria call for HQD to be able to meet –
8
with four years’ notice - the expected load forecast plus one standard deviation.
9
Furthermore, the standard deviation used is that associated with the fourth year of the
10
forecast on the basis that greater uncertainty beyond that year can be addressed in
11
future plans.
12
13
HQD’s currently proposed approach of “fixing” the standard deviation used in the
14
analysis, based on the timeframe required to place new resources in service, appears
15
reasonable. However, it is questionable as to whether the four-year time horizon used
16
in the current Plan is sufficient. First, the four -year time horizon includes the current
17
year (in this case 2005) during which the plan is under review and approval for the
18
request for additional CFTs still subject to approval by the Régie. Since the 4 to 5 ½
19
year time horizon for new supply contracts starts with the issuing of CFTs 52, the current
20
year should not be “counted” as one of the four lead years. Assuming the a new CFT
21
was issued in the second half of 2005, shortly after a decision by the Régie on the
22
currently proposed plan; the four -year lead time would suggest an in-service date of late
23
2009. Indeed, HQD has acknowledged this additional time requirement and noted that
24
additional modulable capacity required to reduce dependence on short-term markets
25
would not be available until the end of 2009 53.
26
27
Also, the criterion needs to recognize the lag that will exist if commitments are not made
28
based on the current plan. For example, if the need for new supply is not identified until
51
52
53
D-2002-169, pages 46-47
HQD-3, Document 3, pages 15 and 39
HQD-5, Document 6, page 39, Response 50.1.2 and pages 46-47, Responses 59.1 and 60.1
21
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
the next annual update (the end of 2005) and Régie approval for a new CFT is obtained
2
in 2006, the earliest additional capacity could be in-service would likely be 2010. Given
3
these two considerations, HQD should adopt the one standard deviation value
4
associated with a six year lead time. Based on Table 9 (above) the revised value for
5
the long-term energy reliability criterion would be 9.9 TWh.
6
7
Also, unlike the 2002 Plan’s criteria, the current energy planning criteria do not address
8
the potential for variations in requirements in the short-term (i.e., the next 4-5 years).
9
As demonstrated in Table 11, energy requirements over the short-term can vary from
10
those forecasted due to weather or economic influences. In its first Supply Plan, HQD’s
11
planning criteria also called for it to be able to meet a “strong growth” scenario during
12
the initial years of plan. In the initial years of the current plan the strong growth scenario
13
is similar to the expected load forecast plus one standard deviation. HQD should also
14
adopt a short-term energy reliability criteria which requires it to demonstrate an ability to
15
meet the medium load forecast plus at least one standard deviation while limiting
16
reliance on the inter-ties to 5 TWh per annum.
17
Table 11
Additional Energy Capability Required (TWh)
Probability Usage
Exceeded
2005
2006
2007
2008
2009
2010
5.00
5.30
6.40
7.80
8.90
9.90
10%
6.90
7.31
8.83
10.76
12.28
13.66
5%
8.25
8.75
10.56
12.87
14.69
16.34
2%
10.28
10.89
13.15
16.03
18.29
20.34
One Standard
Deviation (~16%)
Source:
1) One standard deviation: HQD-3, Document 3, page 38
2) 10%, 5% and 2% calculated assuming a Normal probability distribution
18
22
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Finally, the use of one standard deviation to the medium load forecast in setting the
2
energy reliability criteria means that the “limit” is likely to be exceeded more than 15% of
3
the time 54. Based on the current load forecast, one standard deviation represents 5
4
TWh in 2005 – increasing to 9.9 TWh in 201055. Table 11 also sets out both the
5
additional energy usage associated with the one standard deviation requirement and
6
also the additional usage associated with reducing the uncertainty to 10%, 5% and 2%
7
respectively.
8
9
4.1.2 Capacity Requirements
10
11
For planning purposes, capacity requirements include an allowance for reserves
12
consistent with the NPCC (Northeast Power Coordinating Council) resource adequacy
13
criterion which requires that the probability of disconnecting a non-interruptible customer
14
due to resource inadequacies will be no more than once in ten years or 2.4 hours per
15
annum 56. In the 2002-2011 Supply Plan, HQD indicated that this translated into an
16
overall reserve margin of 11-13% 57. Based on more recent studies, Hydro-Québec is
17
now of the view58 that the reserve requirements to meet the NPCC criteria are
18
somewhat less:
19
•
8.8% for the first planning year (i.e., 2004-2005)
20
•
9.2% fore the next year (2005-2006)
21
•
9.5% for the third year of the Plan (2006-2007) and
22
•
10.1% for the fourth and subsequent years of the Plan.
23
However, HQD noted in its Application, that these values would be updated, if
24
necessary.
25
Table 12 sets out the annual capacity requirements for HQD overall based on these
26
reserve margins.
54
HQD-3, Document 1, page 6. Also, based on a Normal probability distribution, the probability of
exceeding the “mean” by more than one standard deviation is 15.87%.
55
HQD-2, Document 1, page 50, Table 2.17
56
HQD-3, Document 1, page 7
57
R-3470-2001, HQD-2, Document 3, Annexe 3D, page 2
58
HQD-3, Document 1, page 9, Table 2.2
23
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Table 12
HQD's Total Capacity Requirements (MWs)
20042005
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
Peak Demand
34,184
35,412
35,674
36,011
36,282
36,532
36,699
36,909
37,144
37,365
Reserve Margin
3,008
3,258
3,389
3,637
3,664
3,690
3,707
3,728
3,752
3,774
Total Capacity Req.
37,192
38,670
39,063
39,648
39,946
40,222
40,406
40,637
40,896
41,139
2
3
Source: HQD-3, Document 3, page 6
4
Comments
5
6
Hydro-Québec’s Annual Interim (Reliability) Assessment59 was recently made public by
7
the NPCC. In it, Hydro-Québec indicates that the required reserves (consistent with the
8
NPCC’s planning criteria) are 9.6%, 9.7% and 10.3% for 2004-2005, 2005-2006 and
9
2006-2007 respectively. These reserve margin requirements are higher than those
10
presented by HQD in its Application. However, most of the variance appears to be due
11
to the treatment of interruptible power contracts. In the Annual Interim Assessment,
12
interruptible power contracts are treated as a supply resource and inc luded based on
13
their gross value of 800 MW 60. In contrast, the 2005 Supply Plan also treats
14
interruptible power contracts as a supply resource but includes the net value of the
15
contracts (560 MW) in its supply/demand balance calculations 61. The 240 MW
16
difference represents roughly 0.7% of the capacity requirements during the three year
17
period62 concerned and accounts for most of the variance in each year.
18
19
Also, HQD assumes that the capacity reserve margin is constant beyond 2006-2007 at
20
the 2007-2008 value. HQD indicates that the rationale for this is the fact that it could
59
The document is titled “Québec Control Area Interim Review of Resource Adequacy” and dated
December 2004.
60
HQD-5, Document 10 (Revised), pages 29-30, Response 16.2
61
HQD-3, Document 3, page 26
62
HQD-3, Document 3, page 26 indicates that the annual peak demand during this period is between
34,184 MW and 35,674 MW
24
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
make additions to peak capacity at 36 month out 63. However, this statement is at odds
2
with the balance of HQD’s evidence which suggests a timeline of four years or more is
3
required for a ll resources except wind power 64. Furthermore, given the annual planning
4
review cycle used by HQD and discussed in the previous Section, once the current Plan
5
has been adopted new supplies will not be available until the winter of 2010-2011. As a
6
result, it would be prudent for HQD to project its reserve margin requirements out to the
7
winter of 2009-2010 and use the reserve margin as determined for that year to project
8
reserve requirements for subsequent years.
9
10
There is no information available as to the reserve margins required beyond 2007-2008
11
in order to maintain the NPCC reliability criteria However, given that the load forecast
12
uncertainty increases over the planning horizon65, one would expect the reserve margin
13
requirements for the period 2008-2009 through 2013-2014 to be higher. Indeed, simply
14
increasing the reserve requirements in line with the annual increase in load forecast
15
uncertainty would add 0.5 percentage points for each year.
16
17
The capacity planning reserve margins used by Manitoba Hydro 66 and BC Hydro 67, two
18
other provincial utilities with predominantly hydraulic resources, are12% and 14%
19
respectively. The electrical systems for both of these provinces are admittedly different
20
and the reserve requirements will not be the same as those for Hydro-Québec.
21
However, after revising the long-term planning reserve requirements to reflect the
22
reserve requirements for 2009-2010 (as opposed to 2007-2008), HQD’s long-term
23
capacity planning reserve requirements are likely to be closer to these values.
24
63
HQD-3, Document 1, page 9
HQD-5, Document 6, page 39, Response 50.1.2 and page 8, Response 9.2. Also, HQD-3, Document
3, pages 19 and 39
65
HQD-2, Document 1, page 45
66
Manitoba Hydro’s April 2003 NFAAT Application, Chapter 5, pages 12-13.
67
BC Hydro, 2004 Integrated Electricity Plan, Section 2, page 32
64
25
Evidence of
William Harper
1
4.2
Hydro-Québec Distribution
Régie File R-3550-2004
Heritage Pool Supply
2
3
4.2.1 Total Supply Available
4
5
Under the terms of the Heritage Pool68, HQP is required to provide HQD with 179.52 69
6
TWh (includes transmission and distribution losses as well as internal uses and plant
7
consumption by HQD, HQP and HQT). After allowing for internal use by Hydro-
8
Québec, the Heritage Pool energy resources available to meet forecast customer
9
requirements are 178.9 TWh70. Furthermore the hourly load profile of the Heritage Pool
10
energy has been set by Regulation and ranges from a maximum of 34,342 MW to
11
11,420 MW 71.
12
13
The same Statute and Regulations require that HQP also provide the services and
14
reserves necessary to guarantee the availability of the specified Heritage Pool supplies
15
to HQD 72. As a result, HQP is required to provide some of the reserves necessary to
16
meet the overall NPCC resource adequacy requirements. Specifically, it is currently
17
estimated that the reserves associated with ensuring sufficient supply is in place to
18
meet the 34,342 MW associated with the Heritage Pool are 3,100 MW (or roughly 9%).
19
This number is substantially less than the 3,600 MW used in the 2003 Plan Update 73.
20
21
Comments
22
23
There is an inconsistency between the reserve margin requirements associated with
24
total load in the original Application and those associated with the Heritage Pool supply.
25
Total reserve margin requirements are meant to address both load forecast uncertainty
68
69
70
71
72
73
As specified in la Loi sur Hydro-Québec and associated Orders in Council
HQD-5, Document 10, page 36, Responses 22.1-22.2
HQD-5, Document 10, page 36, Response 22.2
HQD-3, Document 2, page 5 and R-3470-2001, HQD-2, Document 2, Annexe 2A
HQD-3, Document 2, pages 5 and 6
HQD-3, Document 1, page 8
26
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
as well as uncertainty with respect to availability of generation. In contrast, HQP’s
2
responsibility for reserves with respect to the Heritage Pool extends only to generation
3
(supply) availability. HQD is responsible for load forecast uncertainty. As a result, one
4
would expect HQP’s reserve margin requirements for the Heritage Pool to be less (in
5
percentage terms) than the total reserve margin requirements for the system overall.
6
For 2004-2005, when load forecast uncertainty is likely to be fairly small, the two
7
reserve margins should be fairly close but the total reserve margin should still be higher.
8
This is not the case in the 2005-2014 Plan where, for 2004-2005, the total reserve
9
margin is 8.8% which is less than the 9% attributed to the Heritage Pool supply
10
capability.
11
12
However, with the revised system reserve margin requirements filed by HQD 74 this
13
inconsistency no lo nger appears to exist as the total system reserve requirements for
14
period 2004-2005 through 2006-2007 range from 9.6% to 10.3%.
15
16
4.2.2 Heritage Pool Dispatch
17
18
As indicated in Section 4.1.1, HQD forecasts that additional energy will be needed in
19
each year due to the need to manage the Heritage Pool in real time. This need arises
20
due to the protocols that have been established between HQD and TransÉnergie, the
21
entity responsible for the management of Québec’s electricity system in real time.
22
Essentially, HQD must provide advance notice to TransÉnergie as to how much
23
electricity is to be dispatched from:
•
24
25
HQD’s long-term supplies acquired through CFTs – based on the contract terms
and HQD’s direction to the suppliers themselves,
•
26
27
Heritage Pool supplies – based HQD’s selection from the remaining hourly
supply options available for the year concerned, and
74
Québec Control Area 2004 Interim Review of Resource Adequacy, December 2004
27
Evidence of
William Harper
•
1
Hydro-Québec Distribution
Régie File R-3550-2004
Short-term purchases, up to and including real time purchases – based on the
2
supply available from short-term contracts and planned real-time spot market
3
purchases.
4
However, to the extent HQD’s actual supply requirements 75 in an hour differ from those
5
forecast by HQD and used to determine the resources it has dispatched, the differences
6
will be made up by HQP 76.
7
8
If the difference is positive, that is more energy is required than has been dispatched by
9
HQD, then HQP will be deemed to have sold the difference to HQD. The framework
10
agreement which HQD and HQP have negotiated sets the “price” that will be associated
11
with such purchases 77. If the difference is negative, that is HQD has dispatched too
12
much energy, then the excess is assumed to be unutilized Heritage Pool supply and
13
there no compensation provided to HQD 78.
14
15
In order to minimize the amount of unutilized Heritage Pool supply, a reconciliation is
16
undertaken at year end 79. Once all the hourly HQD requirements and hourly dispatches
17
of non-Heritage Pool supplies are known, the hourly differences are compared and
18
matched with the hourly supplies available from the Heritage Pool. However, there is
19
unlikely to be a perfect match. Indeed, HQD has modelled this process and estimates
20
that the discrepancy will be in the order to 0.5 TWh in the short-term, decreasing to 0.3
21
TWh in the longer term80.
75
Adjusted for any interruptible power load reductions
HQD-5, Document 1.1, Annexe 2, Slides 17-19; HQD-5, Document 1.1, page 57, Response 22.1 and
HQD-5, Document 4.1, page 4, Response 2.6 and page 6, Response 3.4
77
HQD-5, Document 4.1, page 3, Response 1.1 and page 4, Response 2.4. The price associated with
involuntary energy is proposed in HQD filing R-3568-2005 dealing with the Framework Agreement and
currently before the Régie.
HQD-15, Document 10, page 37, Response 22.3
78
HQD-5, Document 4.1, page 4, Response 1.2
79
HQD-5, Document 2, page 3, Response 1
80
HQD-5, Document 1.1, page 57, Response 22.1 and Document 6, pages 31-33, Responses 40.2 and
41.1
76
28
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Comments
2
3
Recognition by HQD that management of the Heritage Pool in real time will be less than
4
optimal is consistent with concerns expressed in the ECS evidence filed for Phase II of
5
R-3470-200181. However, there are four issues/concerns with these “additional
6
requirements” and the determination of involuntary purchases from HQP as specified by
7
HQD in the current Plan.
8
9
•
Possibility of Unutilized Heritage Pool Capacity
10
11
First, HQD claims that, while management of the Heritage Pool in real time increases
12
overall energy requirements, it does not have any impact on capacity requirements 82.
13
However, if the protocols for real time dispatch of the Heritage Pool can lead to
14
unutilized Heritage Pool energy due to an imperfect matching of Heritage Pool supply
15
with actual loads on an hourly basis, then there is no reason to believe that these same
16
protocols couldn’t lead to mismatches in and around either the time of overall HQD
17
system peak or in and around the time of the peak demand associated with post-
18
Heritage Pool requirements. Indeed, as indicated in response to OC information
19
request 40.2 83, unutilized energy can arise during all months of the year and during the
20
critical winter months (December-February) averages just over 40 MW per hour.
21
22
•
Treatment of Unutilized Heritage Pool Energy
23
24
The second concern is with respect to the disposition of unutilized Heritage Pool
25
energy. HQD’s interpretation of the Regulations governing the Heritage Pool is that it
26
can not make “claim” to unutilized Heritage Pool energy84. HQD notes that this
27
interpretation is consistent with how it has managed Heritage Pool electricity since the
28
introduction of the Regulation.
81
82
83
84
Evidence of William Harper, March 2002, pages 12-13.
HQD-5, Document 6, pages 10-11, Responses 12.1 and 12.2
HQD-5, Document 6, page 32
HQD-5, Document 2, page 3, Response 1.1
29
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
2
It is not the purpose of this evidence to provide a legal interpretation of the Regulation.
3
However, based on simple reading of the Regulation, there is no reference in it to
4
unutilized Heritage Pool energy. The Regulation just lays out what the Heritage Pool
5
supply was to provide for including losses and internal use by HQP. There is no
6
specific reference in the Regulation about real time management of Heritage Pool.
7
Indeed, the existence of unutilized energy is, in itself, simply the result of the protocols
8
established between HQD and TransÉnergie regarding the dispatch of HQD’s
9
resources. Over the longer-term, if spot market purchases (and the re-sale of energy
10
acquired from other contracted resources) were used in real time to balance HQD’s
11
demand and supply requirements then there would be no unutilized Heritage Pool
12
energy.
13
14
HQD also contends that practice to-date, whereby HQD only took possession of
15
Heritage Pool energy required to meet its domestic requirements and never claimed
16
rights to Heritage Pool energy in order to sell it on external markets, is consistent with
17
the proposed unutilized energy construct. However, the Regulation appears to make
18
special provision for those years when HQD’s total annual requirements did not exceed
19
the Heritage Pool supply85. Also, in its most recent rate application, when HQD’s supply
20
requirements were forecasted to e xceed Heritage Pool supplies for 2005, the Heritage
21
Pool energy sold to HQD was determined by comparing HQD’s total requirements with
22
the Heritage Pool supply86. In fact, no reference was made to either hourly load
23
profiles, additional energy requirements to manage supply in real time or unutilized
24
Heritage Pool energy until the cross-examination phase of the proceeding.
25
26
In contrast, the 2005-2014 Supply Plan determines Heritage Pool energy used as the
27
difference between the hourly profile of the supply not provided through HQD-sourced
28
contracts (i.e., Heritage Pool and involuntary sales by HQP) and the hourly profile of the
85
86
See Article 7 of Decree 1277-2001, October 24, 2001
R-3541-2004, HQD-15, Document 2.2, page 11
30
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Heritage Pool supply as specified by Regulation87. This leads to unutilized Heritage
2
Pool energy both in the short-term and even in the longer term after the hour ly load
3
profile for HQD’s total requirements exceeds the Heritage Pool’s specified load profile in
4
each and every hour of the year.
5
6
However, once total requirements (for all hours of the year) exceed the Heritage Pool
7
load profile then it is not necessarily Heritage Pool energy that is unutilized in serving
8
domestic load in those circumstances where planned supply exceeded actual
9
requirements in real time. One could equally view the excess as being sourced out of
10
the other resources HQD has contracted for, which are available for HQD to resell.
11
Furthermore, to the extent the excess (or unutilized energy) is sold on the export market
12
or allows HQP to replenish its reservoirs, such excess supply has a real value. Such a
13
perspective does not eliminate the fact that the energy contracted for by HQD will need
14
to exceed the forecasted post-Heritage Pool requirements, but it does mean that such
15
unutilized energy should not be considered valueless.
16
17
Indeed, one possible perspective would be to view the involuntary energy provided by
18
HQP as being similar to the E nergy Imbalance service provided by Hydro-Québec
19
under its Open Access Transmission Tariff88. Under the current Tariff, a Transmission
20
customer compensates the Transmission Provider (TransÉnergie) for additional energy
21
delivered at a rate of 10.41 cents / kWh and is compensated for additional energy
22
supplied at a rate of 1.28 cents / kWh. In other jurisdictions, proposals for pricing
23
energy imbalance services are directly linked to opportunity costs. For example, BC
24
Hydro’s recent proposal89 for Interconnection Operations Services called for the selling
25
price to be based on market prices, differentiated between high load and low load
26
hours. The purchase price was linked to market prices in the low load hours only in
27
order to recognize that, with BC Hydro’s available hydro reservoirs, involuntary on-peak
87
88
89
HQD-5, Document 2, pages 3-4, Response 1.1
See page 126 of Hydro-Québec’s Open Access Transmission Tariff.
BC Hydro Application to BCUC, August 3, 2004, page 6
31
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
purchases by BC Hydro were really only displacing off-peak imports. A similar
2
approach could be considered by Hydro-Québec.
3
4
•
Quantity of Unutilized Heritage Pool Energy
5
6
Third, it is not clear why the energy required to manage the Heritage Pool in real time is
7
initially set at 500 GWh per annum but assumed to decline to 300 GWh per annum in
8
the later years of the Plan. HQD suggests that, as the total difference between the
9
Heritage Pool supply and HQD’s to tal requirements increases, the additional energy
10
needed to manage the Heritage Pool in real time will decrease90.
11
12
However, unutilized Heritage Pool energy results from negative differences between: a)
13
Total actual hourly requirements less the quantities contracted for by HQD (including
14
real-time purchase directions to TransÉnergie) based on forecasted requirements and
15
b) Heritage Pool energy. Since the amount of supply contracted by HQD will generally
16
be set so as to balance total available supply (including Heritage Pool energy) and total
17
forecasted requirements, unutilized energy is largely the result of errors in short-term
18
load forecasting due to weather variations and other factors that give rise to day to day
19
and hour to hour uncertainty with respect to anticipated loads. Unless these errors and
20
uncertainties are reduced by experience, there is no reason to believe that the absolute
21
quantity of energy required to manage the Heritage Pool in real time will decrease over
22
the time-frame of the Plan.
23
24
•
Treatment of Interruptible Power
25
26
Finally, it is not clear from the material provided when and how interruptible power is
27
incorporated into the system dispatch. Materials provided during the January 14, 2005
28
Technical Conference suggest that interruptible power is called upon last – after
29
consideration of involuntary purchases from HQP 91. However, responses to various
90
91
HQD-5, Document 1.1, Response 22.1
HQD-5, Document 1.1, Annexe 2, Slides 17 and 18.
32
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
information requests 92 during the current proceeding suggest that involuntary purchases
2
from HQP are used as a “last resort” after all other source of supply (including
3
interruptible power) have been “dispatched”. Given the pricing associated with
4
interruptible power (i.e., the greater of 30 cents / kWh or the DAM supply cost less Rate
5
L93) and the fact that it involves disrupting supply to customers, it should be considered
6
as a last resort and dispatched only if there are insufficient supplies available from HQP,
7
including potential real time purchases over the inter-ties. Indeed, the pressure from
8
interruptible customers for high prices reflects not only their interests in being
9
compensated for the interruption they experience but also their interests in ensuring the
10
“high cost” means that they are interrupted only when it is absolutely necessary.
11
12
4.3
Needs in Excess of the Heritage Pool
13
14
For planning purposes, the energy requirements in excess of the He ritage Pool are
15
determined as the difference between the total energy supply needs and the 178.9 TWh
16
of Heritage Pool supply, plus an allowance for the additional energy required to manage
17
the Heritage Pool in real time. These requirements are summarized in HQD-3,
18
Document 3, Table 1.1 94. The capacity requirements to be provided by HQD (as
19
opposed to HQP in support of the Heritage Pool) are similarly calculated as the
20
difference between total power requirements plus total reserve requirements less both
21
the maximum demand to be met by the Heritage Pool and the reserve margin to be
22
provided by HQP in support to the Heritage Pool supply. These requirements are
23
summarized in HQD-3, Document 3, Table 1.2 95. For reference purposes both are set
24
out in Table 13 below.
92
93
94
95
HQD-5, Document 4.1, page 6, Response 3.4 and Document 10, page 38, Response 22.3 c).
D-2004-213, page 4
page 5
page 6
33
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 13
Requirements in Excess of Heritage Pool
Energy
Addition Req. (TWh)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
3.8
7.9
10.1
12.7
13.7
15.1
16.1
18
18.7
20
20042005
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
-250
1228
1621
2206
2504
2780
2964
3195
3454
3697
Capacity
Additional Req. (MW)
Source:
- HQD-3, Document 3, Tables 1.1 and 1.2
1
2
3
The load duration curves HQD has provided for the post Heritage Pool supply needs
4
suggest that additional baseload requirements of roughly 800 MW in 2006 increasing to
5
2100 MW in 201496.
6
7
Comments
8
9
The load profile associated with the requirements in excess of the Heritage Pool is a
10
key factor in determining the types generation/supply options that are best used (from
11
both a technical and cost-effectiveness perspective) to meet these incremental
12
requirements. While HQD has provided information on the load profiles associated with
13
the post-Heritage Pool requirements 97, it has not clearly demonstrated how these load
14
profiles translate into the requirements for different types of capacity – similar to what
15
was done in the 2002-2011 Plan98. Table 14 provides an estimate of HQD’s baseload
16
generation requirements derived from the evidence provided to date.
96
HQD-3, Document 3, page 8, Figure 1.2
HQD-3, Document 3, page 8 and HQD-5, Document 10, page 19, Response 11.1
98
R-3470-2001, HQD-2, Document 3, pages 27-28 and HQD-5, Document 6, page 35, Responses 43.1
and 44.1
97
34
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 14
Characteristics of Post HP Requirements
2008
2010
2014
Total Energy (1) (TWh)
12.7
15.1
20
Maximum Demand(2) (MW)
1698
2039
2826
Baseload Demand(3) (MW)
1250
1600
2100
20072008
20092010
20132014
2206
2780
3697
Capacity Required (4) (MW)
Source:
1) Total Energy - HQD-3, Document 3, Table 1.1
2) Maximum Demand - HQD-3, Document 3, page 9
3) Baseload Demand - Estimated based on HQD-5, Document 10, page 19, Response 11.1
4) Capacity Required - HQD-3, Document 3, Table 1.2
1
2
Adoption of a higher capacity reserve margin, as discussed in Section 4.1.2, would
3
further increase the additional capacity requirements after 2007-2008. There is
4
insufficient information to determine the reserve margin requirements to meet the NPCC
5
requirements for this period. For illustrative purposes the reserve margin is assumed to
6
increase by roughly 0.5 percentage points in each of the next two years, reaching 11%
7
for 2009-1010. After 2009-2010, the reserve margin is held constant – consistent with
8
the comments in Section 4.1.2.Table 15 sets out the additional capacity requirements
9
associated with the updated reserve margins for the period 2004-2005 through 2006-
10
2007. The implications of this higher reserve margin are set out in Table 15.
11
35
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 15
Revised Capacity Requirements in Excess of Heritage Pool
20042005
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
Peak Demand (MW)
34,184
35,412
35,674
36,011
36,282
36,532
36,699
36,909
37,144
37,365
Reserve Margin (%)
8.8%
9.2%
9.5%
10.1%
10.5%
11.0%
11.0%
11.0%
11.0%
11.0%
37,192
38,670
39,063
39,648
40,092
40,551
40,736
40,969
41,230
41,475
34,342
34,342
34,342
34,342
34,342
34,342
34,342
34,342
34,342
34,342
3,100
3,100
3,100
3,100
3,100
3,100
3,100
3,100
3,100
3,100
-250
1,228
1,621
2,206
2,650
3,109
3,294
3,527
3,788
4,033
Total Capacity Req.
(MW)
Heritage Pool Supply
(MW)
Heritage Pool Reserves
(MW)
Additional Capacity
Required (MW)
Source:
- HQD 2005 Plan: HQD-3, Document 3, Table 1.2
1
2
3
It should be noted that use of the revised reserve margins will not increase the need for
4
baseload capacity but will increase the need for modulable and peaking capacity in
5
excess of the Heritage Pool supply for the years 2008-2009 and beyond.
6
7
4.4
Post Heritage Pool Supplies Currently Under Contract/Planned
8
4.4.1 Existing Contracts
9
10
As discussed above (see Section 1), HQD has already completed five calls for tender 99
11
the results of which are summarized in Table 16 100. Also included in Table 16 are the
12
demand reductions available from the new interruptible rate option that HQD introduced.
99
The table excludes the results of A/O 2004-04, which was initiated after the preparation of HQD’s
Application.
100
In some cases, such as the wind contracts, the contracts have been “signed” but final approval by the
Régie is still outstanding.
36
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 16
Supply Associated with Completed HQD CFTs
Energy (TWh)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
0
0
1.4
0
0
4.1
2.6
0.9
4.1
3.1
1.1
4.1
3.1
1.1
4.1
3.1
1.1
3.9
3.1
1.1
3.7
3.1
1.1
4.1
3.1
1.1
4.1
3.1
1.1
0
0.1
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0
0.1
0.7
1.2
1.5
1.9
2.3
2.8
3.2
3.2
1.3
0
0
0
0
0
0
0
0
0
0.8
0
0
0
0
0
0
0
0
0
2.1
1.6
8.6
9.8
10.1
10.5
10.7
11
11.8
11.8
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
0
0
547
350
250
547
350
250
547
350
250
547
350
250
547
350
250
547
350
250
547
350
250
547
350
250
0
20
36
36
36
36
36
36
36
0
77
131
171
208
263
321
361
361
0
0
0
0
0
0
0
0
0
Interrputible Power
560
560
560
560
560
560
560
560
560
Total Capacity Supply
560
1804
1874
1914
1951
2006
2064
2104
2104
A/O 2002-1
- TCE
- HQP - Base
- HQP - Cyclable
A/O 2003-1
- Biomass
A/O 2003-2
- Wind
A/O 2004-1
- Short-Term Supply
A/O 2004-3
- Short-Term Supply
Total Energy Supply
Capacity
A/O 2002-1
- TCE
- HQP - Base
- HQP - Cyclable
A/O 2003-1
- Biomass
A/O 2003-2
- Wind
A/O 2004-1
- Short-Term Supply
1
Source:
HQD-3, Document 2, page 12 and HQD-5, Document 6, page 4, Response 3.1
2
3
4.4.2 Planned Contracts
4
5
As well as the completed CFTs discussed above, HQD is also in the process of making
6
the following supply arrangements:
•
7
Call for tender A/O 2004-02 for 350 MW (2.8 TWh) of supply from cogeneration,
with deliveries anticipated to start in 2008 101.
8
101
HQD-3, Document 2, page 10
37
Evidence of
William Harper
•
1
Hydro-Québec Distribution
Régie File R-3550-2004
A framework agreement with HQP to meet very short-term needs due to weather
2
variations or momentary unavailability of other suppliers 102. The proposed
3
agreement has recently been submitted 103 to the Régie for approval and a
4
procedural order has been issued establishing the regulatory review process 104.
•
5
Call for tender A/O 2004-04 to address the balance of the anticipated energy
requirements for 2005 105.
6
7
Table 17 sets out the combined effect of these initiatives along with those already
8
completed.
102
103
104
105
HQD-3, Document 2, page 11
R-3568-2005
Procedural Order D-2005-91, May 2005
HQD-5, Document 6, page 7, Response 8.2
38
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 17
Supply Associated with Completed & Planned HQD CFTs
Energy (TWh)
A/O 2002-1
- TCE
- HQP - Base
- HQP - Cyclable
A/O 2003-1
- Biomass
A/O 2003-2
- Wind
A/O 2004-1
- Short-Term Supply
A/O 2004-3
- Short-Term Supply
A/O 2004-4
- Short Term Supply
A/O 2004-2
- Cogen
Total Energy Supply
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
0
0
1.4
0
0
4.1
2.6
0.9
4.1
3.1
1.1
4.1
3.1
1.1
4.1
3.1
1.1
3.9
3.1
1.1
3.7
3.1
1.1
4.1
3.1
1.1
4.1
3.1
1.1
0
0.1
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0
0.1
0.7
1.2
1.5
1.9
2.3
2.8
3.2
3.2
1.3
0
0
0
0
0
0
0
0
0
0.8
0
0
0
0
0
0
0
0
0
0.9
0
0
0
0
0
0
0
0
0
0
0
0
0.1
1.7
2.8
2.8
2.8
2.8
2.8
3
1.5
8.5
9.8
11.7
13.1
13.4
13.7
14.4
14.4
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
0
0
0
547
0
0
547
350
250
547
350
250
547
350
250
547
350
250
547
350
250
547
350
250
547
350
250
0
20
36
36
36
36
36
36
36
0
77
131
171
208
263
321
361
361
0
560
0
560
0
560
0
560
0
560
0
560
0
560
0
560
0
560
0
0
0
200
350
350
350
350
350
560
1204
1874
2114
2301
2356
2414
2454
2454
Capacity
A/O 2002-1
- TCE
- HQP - Base
- HQP - Cyclable
A/O 2003-1
- Biomass
A/O 2003-2
- Wind
A/O 2004-1
- Short-Term Supply
Interrputible Power
A/O 2004-2
- Cogen
Total Capacity Supply
Source:
HQD-3, Document 2, page 12 and HQD-5, Document 6, page 4, Response 3.1
1
2
3
Comments
4
5
As well as these arrangements, HQD also plans to enter into agreements for the supply
6
of load balancing services to “firm” up its supply from wind power and allow it to be
7
treated as a firm source of supply106. Indeed, due to the intermittent nature of wind
106
HQD-3, Document 3, page 13 and Document 6, pages 8 and 9, Responses 11.1 and 11.2
39
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
energy, without a complementary load balancing service to firm and shape the supply
2
this source of power can not be relied upon to meet capacity requirements as presented
3
in the proposed 2005 Plan. However, to this date, no discussions have taken place with
4
potential suppliers of load balancing services 107. Furthermore, the potential number of
5
suppliers of such services appears to be limited108. Given the contractual commitments
6
that HQD is in the process of concluding and the pending Government regulation calling
7
for the acquisition of more wind power-based resources, the identification of sufficient
8
suitable and cost-effective load balancing resources needs to be a high priority for HQD.
9
10
4.5
Additional Supplies Required
11
12
4.5.1 Energy and Capacity
13
14
Table 18 summarizes the additional energy and capacity requirements that HQD has
15
identified as still needing to be addressed over the coming 10-year planning horizon
16
2005-2014.
107
108
HQD-5, Document 6, page 9, Response 11.2
HQD-5, Document 6, page 17, Response 17.1 and R-3526-2004, HQ-3, Document OC, Response 2.3
40
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 18
New Supplies Required
Energy (TWh)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Addition Req. over HP
3.8
7.9
10.1
12.7
13.7
15.1
16.1
18
18.7
20
Supplies Contracted/
Planned For
3
1.5
8.5
9.8
11.7
13.1
13.4
13.7
14.4
14.4
0.8
6.4
1.6
2.9
2.0
1.9
2.7
4.3
4.3
5.6
20042005
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
Additional Req. over HP
-250
1,228
1,621
2,206
2,504
2,780
2,964
3,195
3,454
3,697
Supplies Contracted/
Planned for
560
560
1,204
1,874
2,114
2,301
2,356
2,414
2,454
2,454
New Supply Req.
-810
668
417
332
390
479
608
781
1,000
1,243
New Supply Req.
Capacity (MW)
1
2
3
Source:
- HQD-3, Document 3, Tables 1.1 and 1.2
Comments
4
5
Based on the earlier comments in Sections 4.1.2, 4.2.2 and 4.4.1, it would appear that
6
HQD has underestimated the new capacity supplies that will be needed to reliably meet
7
customers’ requirements through to 2013-2014 as follows:
8
•
9
10
The required reserve margins need to be increased in light of the more recent 2004
Interim Review of Resourced Adequacy completed by Hydro-Québec.
•
Higher (capacity) reserve margins should have been used in the period beyond
11
2007-2008 to reflect the lead time required to bring new supply into service in the
12
context of HQD’s overall planning cycle.
13
•
14
There are likely to be addition capacity (as well as energy) requirements associated
with the management of the Heritage Pool supply.
15
There is insufficient information available to determine by how much the requirement for
16
new capacity supplies is underestimated but Table 19 provides an estimate based on a
17
long-term capacity planning reserve of 11% 109 as opposed to 10.1%.
109
See Section 4.3’s comments for the rationale underlying the 11%
41
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 19
New Supplies Required Based on Revised Reserve Marging Requirements
Capacity (MW)
1
2
3
20042005
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
Additional Capacity
Required (MW)
-250
1,228
1,621
2,206
2,650
3,109
3,294
3,527
3,788
4,033
Supplies Contracted/
Planned for
560
560
1,204
1,874
2,114
2,301
2,356
2,414
2,454
2,454
New Supply Req.
-810
668
417
332
536
808
938
1,113
1,334
1,579
Source:
- HQD-3, Document 3, Table 1.2
- Tables 15 and 17
4.5.2 Types of Capacity Required
4
5
The capacity that HQD has already contracted for and/or has plans to contract for is a
6
mix of baseload, modulable/cyclable and peaking supply as demonstrated in Table 20.
42
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 20
Capacity Mix of Current/Planned Contracts
20072008
20092010
20132014
500
350
500
350
500
350
36
36
36
Baseload
A/O 2002-1
- TCE
- HQP - Base
A/O 2003-1
- Biomass
A/O 2003-2
- Wind
A/O 2004-2
- Cogen
Total Baseload
131
208
361
0
1017
350
1444
350
1597
Modulable/Cyclable
A/O 2002-1
- HQP - Cyclable
Total Modulable/Cyclable
250
250
250
250
250
250
560
560
560
47
607
47
607
47
607
1874
2301
2454
Peaking
Interrputible Power
A/O 2002-1
- TCE
Total Peaking
Total
1
2
3
Comments
4
5
Comparing the values in Tables 14 and 20 suggests 110 that the requirement for
6
additional baseload capacity is in the order of 200 MW in both 2007-2008 and 2009-
7
2010 and, then increases to roughly 500 MW by 2013-2014. At the same time, total
8
additional capacity requirements as set out in HQD’s Application increase from roughly
9
330 MW in 2007-2008 to 480 MW in 2009-2010 to 1240 MW in 2013-2014. As a result,
10
while over half of the new requirements are for baseload capacity in 2007/08,
110
The baseload requirements indicated here are only rough estimates. More precise values would
require analyses by HQD
43
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
incremental baseload needs represent only 40% of the total new requirement for 2013-
2
2014.
3
4
4.6
Conclusions
5
6
Methodology
7
8
HQD’s explanation as to how the load forecast is translated into additional (post-
9
Heritage Pool) supply requirements has generally improved relative to the material
10
presented in support of the 2002-2011 Supply Plan. The one major exception is the
11
lack of details in the current Application regarding the types of capacity (e.g., baseload
12
versus modulable, etc.) needed to meet the identified gap between the load forecast
13
and the supplies currently under contract/planned for.
14
15
Capacity Planning Criteria
16
17
While the current Application more clearly lays out HQD’s planning reliability criteria and
18
how they are translated into the need for additional supplies, there are some issues
19
regarding the actual planning criteria used. The capacity planning criteria and, in
20
particular, the 10.1% reserve margin used to determine capacity requirements over the
21
longer term needs to be revised for a couple of reasons:
22
•
The value needs to be updated (and increased) in order to be consistent with the
23
more recent 2004 Interim Review of Resource Adequacy filed with the NPCC.
24
Howvever, the revision required as a result of this updated information is likely to be
25
minor.
26
•
The use of 2007-2008 as the reference year going forward is inconsistent with the
27
four year lead time required for major new supply and HQD’s planning cycle. %.
28
Although further analysis by HQD (and HQP) is required in order to determine the
29
actual value. The appropriate long-term capacity planning reserve margin is likely in
30
the order of 11%.
44
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Energy Planning Criteria
2
3
The use of one standard deviation from the medium load forecast as the basis for the
4
long-term energy planning criterion means there is a material probability (over 15%) that
5
the limit will be exceeded. When coupled with the earlier concerns regarding the
6
uncertainty associated with the load forecast, use of one standard deviation leads to
7
considerable risk that the limits may be exceeded. Consideration should be given to
8
adopting a more conservative limit (e.g., 10% probability of exceeding).
9
10
In addition, based on the same rationale used to support a longer timeframe for the
11
capacity planning criterion, the 4-year time horizon used to establish the variance
12
associated with the long-term energy-related criterion should be extended to 6 years.
13
14
Also, for this 6 year period, HQD should adopt a short-term energy planning criterion
15
that acknowledges the potential for variations in future energy requirements and the
16
limited capability of the inter-ties to support such variations. Adoption of a short-term
17
energy criterion of this form would be consistent with past findings of the Régie111.
18
19
Load Balancing Services
20
21
Given HQD’s current commitment to wind generation and its future plans to procure
22
additional wind-based supplies, high priority should be given to securing the necessary
23
contracts for “balancing resources” that will permit wind power to be considered a firm
24
resource for planning purposes. Indeed, the lack of any progress to date in this area is
25
concerning and the Régie should direct HQD to, at minimum, complete agreements for
26
sufficient balancing resources to support the 990MW of wind generation already under
27
contract before approval is given to proceed with new CFT for additional wind -based
28
generation.
111
D-2002-169, page 47
45
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Heritage Pool Management
2
3
A number of concerns have been identified regarding the management of the Heritage
4
Pool. While their resolution is unlikely to have a material impact on the overall
5
additional supply requirements, they have been ongoing matters of concern since the
6
first Supply Plan was filed with the Régie and need to be resolved as they will have
7
impact on the overall cost of supply for HQD’s customers.
8
46
Evidence of
William Harper
1
5
Hydro-Québec Distribution
Régie File R-3550-2004
HQD’s 2005-2014 Supply Strategy and Plans
2
3
5.1
Near Term (2005-2008)
4
5
HQD has indicated that due to the lead times required to obtain new long-term supply
6
sources, the additional power and energy needs set out in Table 18 (above), for the
7
period up to a nd including the winter of 2008-2009 will be met by short-term market
8
purchases 112 with contract periods of one-year or less 113. These short-term market
9
purchases could be sourced from Hydro Quebec and neighbouring grids (i.e., in the
10
United States). However, HQD can not assume the Quebec producers (including HQP)
11
will have surplus energy available since they all rely on hydro-based resources and are
12
subject to supply variances 114. This means that the inter-ties may have to be relied on
13
to meet any short-term shortfall in projected supply and also to meet any increases in
14
load over and above the forecast used to determine the new supply requirements
15
associated with the medium load forecast115. Table 21 below summarizes the HQD’s
16
anticipated reliance on the inter-ties assuming all new supplies needed are acquired
17
through short-term markets. For purposes of preparing the table, the anticipated new
18
wind supplies116 from HQD’s proposed CFTs have been included and reduce the
19
reliance on the inter-ties.
112
HQD-5, Document 6, page 8, Responses 9.1 and 9.2
HQD-5, Document 6, page 34, Response 41.2
114
HQD-5, Document 1.1 page 50, Response 17.1
115
In its current plan HQD is forecasting small amounts of energy to also be available in 2007 and 2008
from a future CFT for wind power. There is also the possibility that output from already in-service
modulable/cyclable capacity could be increased to meet higher than currently anticipated energy
requirements.
116
Wind energy is the only source of new supply with a lead time of less than four years – see HQD-3,
Document 3, Annexe 3A
113
47
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 21
Short Term Energy Requirements
Energy (TWh)
2005
2006
2007
2008
2009
2010
- New Supply Req.
0.8
(Table 18)
- Existing ST
3
Commitments
(Table 17)
- Planned Supply
0
from New Sources
(HQD-3,Doc 3, page 25)
-Total ST Req.
3.8
(Based on Medium
Load Forecast)
6.4
1.6
2.9
2.0
1.9
0
0
0
0
0
0
-0.1
-0.7
-1.3
-1.9
6.4
1.5
2.2
0.7
0
-One-Standard
Deviation (Table 11)
5
5.3
6.4
7.8
8.9
9.9
8.8
11.7
7.9
10
9.6
9.9
20042005
20052006
20062007
20072008
20082009
20092010
-810
668
417
332
390
479
Total ST Req.
(Based on 85%
Confidence)
Capacity (MW)
- New ST
Req. (Table 18)
1
2
3
5.1.1 Inter-Tie Capability
4
5
HQD has updated 117 the information it provided in R-3470-2001 regarding the import
6
capability of the inter-ties and its ability to rely on imports:
•
7
The amount of power that can be imported annually based on technical and
8
physical limits is 24.1 TWh – 10.2 TWh in the peak period and 13.9 TWh in the
9
off-peak period. The comparable value in R-3470-2001 was 34.7 TWh.
117
HQD-5, Document 1, pages 6 & 7, Response 3
48
Evidence of
William Harper
•
1
Hydro-Québec Distribution
Régie File R-3550-2004
The amount of power that can be imported after taking into account “market
2
constraints” is 16.2 TWh – 4.5 TWh in the peak period and 11.6 TWh in the off-
3
peak period. The comparable value in R-3470-2001 was 20 TWh.
4
5
Comments
6
7
For planning purposes, HQD has set118 a strategic limit of 5 TWh annually as the
8
amount it should rely on the inter-ties for planning purposes. This limit recognizes that a
9
significant amount of the 16.2 TWh is in the off-peak period and may not be of value to
10
HQD. It also recognizes the HQP may also need to access the inter-ties to meet its
11
Heritage Pool commitments 119.
12
13
The strategy underlying HQD’s 2002-2011 Plan called for relying on energy supplies
14
from the short-term markets (e.g., the inter-ties) and interruptible power during the initial
15
years of the Plan only to meet uncertainties in future demands 120. However, the
16
situation has fundamentally changed for the 2005 Plan in that the short-term markets
17
are being heavily relied upon over the next 4 years (or more) to meet the expected load
18
forecast. Indeed, based on the expected load forecast, HQD will only be able to stay
19
within the 5 TWh limit in three out of the next fo ur years – with 2006 being the year the
20
limit is exceeded (i.e., requirements are 6.4 TWh vs. 5 TWh) . However, HQD has
21
confirmed with HQP that its (i.e., HQD’s) reliance on the inter-ties for 6.4 TWh will not
22
jeopardize HQP’s ability to meet its supply obligations 121 over the next few years given
23
the current status of its hydro reservoirs.
24
25
Given these circumstances, the question arises as to where the incremental energy
26
supplies would come from in the short-term if energy needs were to exceed the current
27
load forecast due to either stronger economic growth or weather variations. As
118
HQD-3, Document 1, page 14
HQD-5, Document 6, pages 35-36, Response 45.1
120
R-3470-2001, HQD-2, Document 3, page 21
121
HQD-5, Document 6, page 45, Responses 57.3 and 57.4. Annexe 3B suggests that HQP’s reliance
on interconnections under low water conditions would be 3 TWh or less per annum.
119
49
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
illustrated in Table 21 (above), if energy requirements were to exceed the medium
2
forecast by one standard deviation then HQD’s reliance on the inter-ties would exceed
3
the 5 TWh limit in all four years and, indeed, even exceed the 10 TWh limit established
4
for the inter ties overall in one out of the four years concerned (i.e., 2006).
5
6
Under normal water flows, there may be additional resources available from HQP 122 to
7
meet HQD’s increased requirements. However, if HQP were to experience low water
8
flows at the same time and require 2 TWh of inter-tie capability each year to meet its
9
obligations, the 10 TWh limit would be exceeded in 3 out of the 4 years. Thus, while the
10
conclusions in Section 4.1 suggested adopting a more conservative limit for HQD’s
11
energy reliability criterion, HQD could be pressed simply to meet a short-term criterion
12
based on one standard deviation if hydraulic conditions in the province were to
13
deteriorate.
14
15
There is additional import capability available in the off-peak period. However, it is
16
unlikely that HQD would be able to utilize it without access to storage whereby the
17
energy would be purchased in the off-peak, stored overnight or longer and re-
18
dispatched in a higher load period (i.e. something akin to the load balancing service
19
required for wind energy). A n issue therefore arises as to what arrangements might be
20
made, in the event of higher load growth, between HQD and HQP that would see HQP
21
importing energy in the off-peak, effectively storing some or all of it in its hydro
22
reservoirs and then re-selling the energy to HQD in the peak period.
23
24
Going forward, HQD’s supply mix would typically include modulable and cyclable
25
sources of supply whose energy o utput could be increased in the event of a higher than
26
expected loads. However, HQD’s first cyclable post-Heritage Pool resources are not
27
scheduled to come on line until 2007 123. This resource could help address additional
122
123
HQD-3, Document 3, page 36
This would be the 250 MW of supply contracted for with HQP as a result of A/O 2002-1.
50
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
energy needs in the latter part of that year and 2008124 – but not in 2006 which is the
2
most critical period. The circumstances HQD faces for 2005 through 2008 highlight the
3
need for HQD to put in place adequate modulable/cyclable resources as part of their
4
overall post Heritage Pool supply mix125.
5
6
Also, in assessing the short-term energy supply situation, HQD has assumed that the
7
deliveries from the second wind energy CFT will commence in 2007 and ramp up there
8
after. However, given that the earliest the second wind CFT could be initiated is in the
9
latter half of 2005, the assumption that deliveries will start as early as 2007 seems
10
overly optimistic. HQD has indicated that for wind power the time required from
11
initiating the CFT to in-service date is roughly 40 months 126. This time frame is
12
consistent with timing assumed for the first wind power CFT which was launched in May
13
2003 with deliveries to start in December 2006127. Similar timelines for the second CFT
14
would mean first deliveries could be expected at the very end of 2008 and, more likely,
15
starting in 2009.
16
17
Finally, the revised reserve margins discussed earlier 128, will increase the capacity
18
requirements that must be met through the short-term markets after 2007-2008.
19
However, HQD’s Application indicates a winter capability of roughly 1900 MW (after
20
allowances for technical constraints 129) which should be sufficient to provide for even
21
the higher requirements now expected.
124
The current supply plan assumes this resource operates at 50% capacity factor and produces roughly
1 TWh per annum – see HQD 3, Document 3, page 25. See also HQD-5, Document 6, pages 39-40,
Response 50.1.3
125
This is consistent with and supports HQD’s long-term strategy (HQD-3, Document 3, page 15, lines
18-20)
126
HQD-3, Document 3, page 41
127
HQD-3, Document 2, page 10
128
Sections 4.1.2 and 4.6
129
HQD-3, Document 1, page 12
51
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
5.1.2 Mix of Market Purchases
2
3
Market purchases of short-term (one-year or less) energy supplies can be made well in
4
advance of the time frame they are required or they can be made closer to the date
5
concerned right up to either the day ahead or in “real time” 130. For 2005, HQD plans to
6
enter contracts in advance (i.e., 3 months or more prior to delivery) for 3 TWh of supply
7
and then obtain the remaining 0.8 TWh it anticipates it will require on a very short-term
8
basis131.
9
10
For 2006, HQD plans to reassess, during 2005, exactly how much energy is likely to be
11
required and then issue calls for tender for supply in the spring and fa ll of this year 132.
12
Exactly how much of the total supply will be arranged in advance as opposed to left to
13
very short-term purchases will also be determined during 2005133. Then for 2007, given
14
the relatively smaller amount of energy required, HQD anticipates 134 issuing just one
15
call for tender in 2006. However, again, the requirements will be reassessed after the
16
next demand review. Similarly, the requirements for 2008 will also be re-evaluated as
17
new load forecasts become available.
18
19
Comments
20
21
Purchasing market-based requirements in advance (as HQD recently did with the
22
Constellation Group) allows a utility to lock in (or hedge) prices based on “normal or
23
expected” market conditions; whereas with very short-term purchases the utility and its
24
customers are exposed to more potential price volatility. Indeed, conditions such as
25
colder weather or economic upswings that lead to higher than expected electrical
26
energy requirements are also likely to trigger increases in market prices if demand
27
increases in general across the north-eastern USA. The down-side of advance
130
131
132
133
134
HQD-5,
HQD-3,
HQD-3,
HQD-5,
HQD-3,
Document 1, pages 8 & 9, Response 4.1 & 4.2
Document 3, page 27
Document 3, page 28
Document 6, Response 57.1
Document 3, pages 30-31
52
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
purchases is that if loads are lower than forecast, the utility may have excess supply
2
and resale price may well be less than the initial purchase price. As result, a balance is
3
required between adva nce purchases and reliance on very short-term purchases and it
4
is reasonable for a utility such as HQD to rely on both market sources.
5
6
HQD’s current strategy135 is to use short-term CFTs to meet the remaining
7
base/intermediate load requirements (i.e., requirements with a high load factor). Then
8
very low load factor/volatile requirements are met through the very short-term supply
9
options such as the day-ahead market. HQD does not appear to have undertaken any
10
detailed economic analyses of the tradeoffs involved between the two to help better
11
define the optimum reliance on very short-term supplies. However, it is early days in
12
terms of HQD’s involvement as a “purchaser” in electricity markets and the terms of the
13
framework agreement with HQP will be a critical element of any hedging strategy.
14
15
5.1.3 Conclusions
16
17
Short Term Supply Situation
18
19
The main conclusion to be taken from the preceding comments is that HQD’s energy
20
supply options are limited in the short term – particularly for the 2005-2008 period when
21
it has only a small amount of modulable /cyclable supply under contract – and the inter-
22
ties may have to be relied on more so than good planning would call for. HQD is
23
fortunate that currently HQP’s hydro reservoirs are in reasonably good supply and, as a
24
result, HQP will not have rely significantly on the inter-ties to meet its supply obligations
25
– even if water conditions are low in the future.
26
27
HQD has indicated that the contribution of the cyclable product (i.e., the 250 MW under
28
contract with HQP) could be increased136. However, the increase is likely to only be in
135
136
HQD-5, Document 1, page 8, Responses 4.1 and 4.2
HQD-5, Document 6, page 40, Response 50.1.3
53
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
the order of 1.0 TWh137. HQD has indicated the re is the possibility of purchasing
2
surplus energy from other current suppliers. However, it has also acknowledged that it
3
has no knowledge of any such excesses existing 138. Furthermore, HQD’s plans to rely
4
on nominal deliveries of wind energy starting in 2007 appear optimistic.
5
6
As a result, a combination of events such as higher load growth and low water
7
conditions could lead to a situation where the 10 TWh limit on the inter-ties would be
8
exceeded. While there appears to be very little more that HQD can do to address the
9
current short-term supply situation, there may be some opportunity for HQD make
10
additional off-peak purchases in the short-term market if suitable storage arrangements
11
could be negotiated with HQP.
12
13
Also, the current situation does highlight the need for the inclusion of more
14
modulable/cyclable capacity in HQD’s future supply mix.
15
16
Mix of Market Purchases
17
18
While it may be currently be premature, for the next Supply Plan HQD should be
19
prepare an economic assessment of the appropriate mix of short-term versus very
20
short-market purchases.
137
138
R-3515-2003, HQD-1, Document 2, page 9
HQD-5, Document 6, page 40, Response 50.1.3
54
Evidence of
William Harper
1
5.2
Hydro-Québec Distribution
Régie File R-3550-2004
Longer Term (2009-2014)
2
3
Over the longer term period (i.e., 2009 and beyond), HQD plans to meet its additional
4
supply requirements through the acquisition of new resources as well as through the
5
short-term markets. However, in doing so, HQD must take into account not only its
6
actual supply requirements but also directives from the Québec government (and the
7
Régie) regarding the types of resources to be acquired. In this regard, there are
8
currently two directives that will influence HQD’s future acquisition strategies:
•
9
In 2003, the Provincial Government issued a regulation calling for HQD to adopt,
10
as an objective, the acquisition of 800 MW of supply based on cogeneration139
11
(current calls for tender have addressed 350 MW of this) and
•
12
13
Government regulations are expected shortly140 regarding the acquisition of
addition supply based on wind energy.
14
15
5.2.1 Available Supply Options
16
17
A number of potential sources of new generation are identified in HQD’s Application.
18
19
Hydraulic
20
21
There are a number of remaining hydro-electric sites in Quebec and HQP’s current
22
plans 141 call for it to develop over 2600 MW of additiona l capacity by 2011-2012. As a
23
result, hydraulic resources could contribute significantly to HQD’s future supply
24
requirements.
139
140
141
HQD-3, Document 3, page 13
HQD-3, Document 3, page 13
See A-2004-01, page 72
55
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Biomass
2
3
Given the limited response to A-2003-01 and the number of MW of generation from
4
biomass eventually contracted for, HQD suggests that there is unlikely to be additional
5
new supply available at a reasonable cost 142 from this resource. Also, an issue arose
6
during the call for tender regarding the availability of biomass resources 143 which is
7
likely to limit the potential for additional new resources from this source.
8
9
Cogeneration
10
11
The 547 MW TCE project that HQD has contracted for at Bécancour is a cogeneration
12
facility144 with an anticipated levelized ($2007) cost of supply of $60/MWh145. The
13
Régie, in its 2004 Report to the Minister, concluded that the cogeneration potential in
14
Québec (with no efficiency constraints) is in the order of 1,000 to 2,000 MW 146.
15
16
HQD is in the process of completing its first call for tender for supply from cogeneration.
17
The results of this process will provide an indication as to the overall potential for
18
cogeneration in Québec. The preliminary list of bids accepted totalled 591.8 MW from
19
10 bidders for December 2009 in-service147. The supply sources included natural gas,
20
heavy fuel oil, wood residue and biogas.
21
22
Wind Energy
23
24
HQD recently completed its first call for tender for wind-based generation. Overall 32
25
offers from nine different bidders were received with a total capacity of 4,000 MW 148. In
26
February of this year, HQD signed nine contracts for a total of 990 MW of wind powered
142
143
144
145
146
147
148
HQD-3, Document 3, page 12
R-3533, HQD-2, Document 6, Merrimack Report, page 11
A-2004-01, pages 112 and 115
D-2003-159, page 17
A-2004-01, page 112
http://www.hydroquebec.com/distribution/en/marchequebecois/
HQD-1, Document 2, page 8 and HQD-5, Document 6. page 50, Response 64.4
56
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
generation. The contracts have recently been submitted to the Régie for approval149.
2
Documentation provided in support of that Application indicates that the average
3
levelized cost ($2007) of the selected bids is $78/MWh ($65/MWh for the electricity plus
4
$13/MWh for transmission and losses) 150.
5
6
Due to the intermittent nature of wind as a resource, HQD has indicated that it will also
7
be necessary to contract for a load balancing service before wind can be considered a
8
resource for purposes of energy planning 151. HQD has also indicated that while hydro-
9
based facilities with storage (i.e., reservoirs) are a potential source of balancing service,
10
it has not yet entered into discussions with potential suppliers152.
11
12
Combined Cycle Gas Turbines (CCGTs)
13
14
CCGTs are one of the more versatile forms of generation as they are based on proven
15
technology; aren’t as geographically dependent as wind or hydro; and can be used to
16
meet baseload, cyclable or modulable requirements. HQD is of the view that CCGTs
17
have a role in meeting future supply requirements. However, there has been
18
considerable public opposition to specific proposals to locate a CCGT in Quebec153.
19
Analyses undertaken by Merrimack Energy in support of HQD’s applications to the
20
Régie for contract approval indicates that the levelized cost ($2007) of production from
21
new combined cycle plants located in neighbouring jurisdictions would cost roughly $65
22
- $70/MWh (prior to the inclusion of transmission costs for delivery to the Québec
23
border) 154. This is similar to $66/MWh ($2008) cost of production attributed to the
24
proposed Suroît plant 155.
149
150
151
152
153
154
155
Demande R-3569-2005
HQD-2, Document 4, page 6
HQD-3, Document 3, page 13
HQD-5, Document 1.1, page 59, Response 24.1 and HQD-3, Document 6, page 17, Response 17.4
HQD-3, Document 2, page 14
R-3515-2003. HQD-2, Document 4, pages 8-13
A-2004-01, pages 121 and 122
57
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Comments
2
3
The primary sources of new long -term supply for HQD are likely to be hydro resources,
4
cogeneration projects, wind energy and combined cycle (gas-fired) generation. The
5
hydro resources would be developed by HQP while the other resources would be
6
developed by private parties.
7
8
Table 22 sets out the available information regarding the levelized cost of these various
9
supply sources.
10
Table 22
Cost of New Supply Resources
Resource
Cost
Source
Wind
$78/MWh ($2007)
Results of A/O 2003-02
Hydraulic
- Base
- Cyclable
$55/MWh ($2007)
$74/MWh ($2007)
Results of A/O 2002-01
Results of A/O 2002-01
CoGeneration
- TCE
$60/MWh ($2007)
Results of A/O 2002-01
Biomass
$67/MWh ($2007)
Results of A/O 2003-01
Combined Cycle
- Suroit
$66/MWh ($2008)
A-2004-01
- NE USA *
- NE USA*
$66.2-$74.6/MWh
R-3533-2004 Merrimack Energy
(Expressed in $2008)
$67-$72/MWh
R-3515-2003 Merrimack Energy
(Expressed in $2007)
Note: The Combined Cycle costs for NE USA include transportation to
the Quebec border.
11
12
13
However, when comparing the various sources it is important to note that:
14
•
15
Of the four potential sources only combined cycle generation and hydro resources
would be capable of meeting HQD’s modulable, cyclable or peaking capacity
58
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
requirements and, in the case of hydro resources, this would be dependent upon the
2
specifics of the site under development. Furthermore, only the combined cycle
3
facilities are likely to have the flexibility to actually increase production in the event of
4
higher loads.
5
•
The cost of hydro facilities is likely to be “site specific” such that the costs attributed
6
to the current HQP contracts may not be representative of the cost of future hydro-
7
based resources. Also, one of the key reasons for the difference between the
8
baseload and cyclable hydro-based contracts is that the former is assumed to
9
operate at 94% capacity factor while the capacity factor of the latter is only 50%.
10
•
The cost attributable to wind energy does not include any costs for the balancing
11
supply that will be necessary to “firm up” the supply from wind generation and allow
12
it to be included for energy planning 156.
13
14
With respect to the last point, HQD has not had any discussions with potential suppliers
15
of balancing services and, as a result, the associated costs and availability are
16
unknown. In addition, HQD has indicated that there are limits on the amount of load
17
balancing capacity that would be available from hydro resources 157. HQD has
18
suggested the possibility of launching a CFT to obtain the necessary service158 and/or
19
integrating the future needs for both cyclable and load balancing resources159.
20
21
As noted earlier, there is an urgent need for HQD to pursue the availability and cost of
22
load balancing services. HQD has already made a significant commitment to wind
23
energy and this commitment will likely double over the coming years if the anticipated
24
government direction regarding future wind acquisition becomes a reality. It is critical
25
that HQD confirm that sufficient load balancing resources are available at a reasonable
26
cost to support this anticipated commitment to wind power.
156
157
158
159
HQD-3,
HQD-3,
HQD-5,
HQD-5,
Document 3, page 13 and HQD-5, Document 6, pages 8-9, Response 11.1
Document 3, page 13 and HQD-5, Document 1.1, page 58, Responses 23.1 and 23.2.
Document 1.1, page 59, Response 24.1
Document 6, page 41, Responses 52.1 and pages 42-43, Responses 54.1 and 54.2
59
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Table 21 also includes estimates as to the cost of delivering production from combined
2
cycle generation located in neighbouring jurisdictions to the Québec border. The values
3
were developed as benchmarks to demonstrate the reasonableness of the contract
4
prices associated with Québec based resources selected through HQD’s CFT
5
processes. HQD has expressed concerns 160 about the potential impact that entering
6
into long-term contracts for supply with generation sources outside Québec could have
7
on its short-term import capabilities and its ability to fairly permit such generation
8
sources to participate in its CFT process. The later concern relates to difficulties HQD
9
perceives in creating clear CFT criteria that will protect ST market capabilities over the
10
next 20 years.
11
12
This issue was discussed during the review of the first Supply Plan and addressed in
13
the ECS evidence at that time 161. The point made then and still valid today is that the
14
inter-tie limits identified by HQD (i.e., the 15 TWh162) and used to establish the amount
15
for which HQD can rely on the inter-ties for short-term purchases include considerations
16
of regarding the likely availability of power in neighbouring jurisdictions at the time HQD
17
requires it. Prior to these considerations, the import capability of the inter-ties is roughly
18
24 TWh163. As discussed in the original evidence, this would suggest that there is some
19
opportunity (roughly 9 TWh) to use the inter-ties to import power under lo ng term
20
contracts and still rely on the inter-ties as planned to meet short-term needs.
21
22
HQD can not guarantee itself continued access to 5 TWh of inter-tie capacity over the
23
next 20 years unless it formally reserves the capacity under TransÉnergie’s open
24
access tariff. Rather the 5 TWh limit set by HQD is an assessment of what’s expected
25
to be available based on current transmission facilities and contracts. For purposes of
26
its CFT process, HQD should require parties outside Québec to be responsible for
27
arranging the transmission rights required to deliver the power to Québec and any
160
161
162
163
HQD-3, Document 3, pages 16-17
R-3470-2001, ECS Evidence, March 2002, page 14
HQD-3, Document 3, page 14
HQD-5, Document 1, pages 6-7, Response 3
60
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
submitted tender should confirm this. HQD should then assess whether the proposed
2
firm import would impact on transmission capabilities as they currently exist.
3
4
5.2.2 HQD’s Long Term Supply Strategy
5
6
HQD’s long-term supply strategy involves 164:
•
7
8
Meeting the longer term (i.e., 48 to 66 months out) needs associated with the
medium load forecast through calls for tender.
•
9
Acquiring additional modulable generation such that HQD can meet higher load
10
growth while relying on short-term markets for no more than 5 TWh of supply /
11
annum.
•
12
13
Maintaining sufficient flexibility in the terms of the actual contracts themselves to
meet higher or lower demand forecasts.
14
15
According to HQD’s Application, the additional energy and capacity requirements that
16
must be provided for in order to satisfy this strategy are set out in Table 23.
164
HQD-3, Document 1, page 15
61
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Table 23
Additional Long-Term Supply Requirements
Energy (TWh)
Additional Req.
- Medium Forecast(1)
- One Stanard Dev(2)
Total
2009
2010
2011
2012
2013
2014
2
7.8
9.8
1.9
7.8
9.7
2.7
7.8
10.5
4.3
7.8
12.1
4.3
7.8
12.1
5.6
7.8
13.4
20092010
20102011
20112012
20122013
20132014
479
608
781
1000
1243
Capacity (MW)
Additional Req.
- Medium Forecast
(3)
plus Reserves
Source:
1) Table 18
2) HQD-3, Document 3, page 38
3) Table 18
2
3
4
In order to meet these additional requirements, HQD plans to:
5
•
first starting to come on line in 2007 165.
6
7
Launch a second CFT in 2005 for 1,000 MW of wind-based generation, with supply
•
After the completion of the Parliamentary Commission’s work, launch a CFT open to
8
all generation sources designed to obtain 400 MW of modulable resources with in-
9
service dates starting in 2009. HQD indicates that the most likely sources for such a
resource would be hydro or thermal (principally combined cycle) generation166, and
10
11
•
At some future date, launch a CFT to acquire more supply based on cogeneration
with a target in-service date of 2011 167.
12
165
166
167
HQD-3, Document 3, pages 21 and 25
HQD-3, Document 3, pages 23-24
HQD-3, Document 3, page 22, lines 16-20
62
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
Tables 24 and 25 set out how HQD sees these additional resources contributing to its
2
identified long-term capacity and energy requirements based on the medium load
3
forecast.
4
Table 24
Long Term Capacity Balance
(MW)
Additional Req.
- Medium Forecast
plus Reserves(1)
Planned Acquisitions (2)
- 2nd Wind CFT
- CFT for Modulable
Capacity
- CFT for CoGen
Capacity
Total
Supply Surplus/(Deficit)
Source:
5
20092010
20102011
20112012
20122013
20132014
479
608
781
1000
1243
210
400
250
400
350
400
350
400
350
400
0
0
100
100
250
610
650
850
850
1000
131
42
69
-150
-243
1) Table 22
2) HQD-3, Document 3, page 26
63
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 25
Long Term Energy Balance
Based on Medium Load Forecast (TWh)
Additional Req.
(1)
- Medium Forecast
Planned Acquisitions
- 2nd Wind CFT
- CFT for Modulable
Capacity
- CFT for Cogen
Capacity
Total
Supply Surplus/
(Deficit)
Source:
2009
2010
2011
2012
2013
2014
2
1.9
2.7
4.3
4.3
5.6
1.3
-
1.9
-
2.5
-
3.1
-
3.1
-
3.1
-
0
0
0.1
0.8
0.9
2
1.3
1.9
2.6
3.9
4
5.1
-0.7
0
-0.1
-0.4
-0.3
-0.5
(2)
1) Table 19
2) HQD-3, Document 3, page 25.
1
2
In its Application HQD also suggests the need for additional cyclable resources starting
3
in 2010-2011 based on the need for load following capabilities and balancing services
4
for wind generation168. However, the proposed Plan does not include additional
5
cyclable capacity. Rather, HQD is considering adapting its load balancing service so
6
that it can meet its cyclable requirements as well 169. HQD plans to specify its needs in
7
this regard during 2005.
8
9
Table 26 sets out how HQD’s 2005 Plan meets its longer term energy reliability criterion
10
– i.e., respond to the higher requirements associated with the medium load forecast
11
plus 7.8 TWh without relying on short-term purchases for more than 5 TWh per annum.
168
169
HQD-3, Document 3, page 24
HQD-5, Document 6, page 42, Response 54.1
64
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 26
Long Term Energy Balance
Based on Medium Load Forecast Plus One Standard Deviation (TWh)
2009
2010
2011
2012
2013
2014
2
7.8
9.8
1.9
7.8
9.7
2.7
7.8
10.5
4.3
7.8
12.1
4.3
7.8
12.1
5.6
7.8
13.4
1.3
0.3
1.9
3.2
2.5
3.2
3.1
3.2
3.1
3.2
3.1
3.2
0.5
2.1
3.6
3.6
3.6
1.6
5.6
7.8
9.9
9.9
9.9
-8.2
-4.1
-2.7
-2.2
-2.2
-3.5
Additional Req. (1)
- Medium Forecast
- One Stanard Dev
Total
Planned Acquisitions
- 2nd Wind CFT
- CFT for Modulable
Capacity
- CFT for Cogen
(3)
Capacity
Total
(2)
Supply Surplus/
(Deficit)
Source:
1
2
1) Table 22
2) HQD-3, Document 3, page 38
3) Assumes a one-year advancement of the CFT for Cogen Resources and
an increase in the total cogen resources called for.
3
As illustrated in Table 26, in order to meet the energy requirements of a higher growth
4
scenario, HQD indicates that it would advance the initiation of calls for tender for
5
additional cogeneration and increase the planned increment in capacity to 450 MW
6
(versus the 250 MW originally planned)170. This will enable HQD to limit its reliance on
7
short-term purchases after 2009 to less than 5 TWh / annum consistent with its long-
8
term energy reliability criterion171. HQD notes that while the reliance on short-term
9
markets would be high in 2008 and 2009, this should not result in undue risk given the
10
additional capacity that is being installed in Québec through the same period172.
170
171
172
HQD-3, Document 3, page 35
HQD-3, Document 3, page 37
HQD-3, Document 3, page 36
65
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Comments
2
3
•
Capacity Mix
4
5
HQD’s proposed Supply Plan calls for its long-term supply needs to be met by a
6
combination of modulable/cyclable and baseload resources. Table 27 sets out the
7
capacity mix resulting from the proposed Supply Plan. As noted earlier, HQD has not
8
provided a definitive breakdown of its required capacity mix over the planning period173.
9
However, for purposes of this evidence an estimate has been developed and included
10
previously in Table 14. Contrasting the acquisition mix in Table 27 with the
11
requirements set out in Table 14 indicates that, while there are years where there is a
12
capacity shortfall relative to the distributor’s expected requirements, the baseload
13
resources contracted for generally meet (and sometimes exceed) HQD’s baseload
14
demand. This observation is consistent with HQD’s own comments 174 that additional
15
cyclable resources are needed towards the end of the planning period.
16
17
However, the fact that HQD has already contracted for sufficient baseload capacity and,
18
if anything, requires more modulable or cyclable capacity raises the question as to
19
whether simply advancing the timing and increasing the quantities associated with the
20
planned CFT for cogeneration (which is also a baseload resource) would be the
21
appropriate response to a higher load forecast. Ideally, given the capacity mix
22
associated with the Plan, the response would also include acquisition of additional
23
modulable and/or cyclable resources.
24
25
As an alternative to contracting for additional modulable/cyclable capacity, HQD could
26
contract for additional baseload generation and resell any excess not required to meet
27
domestic needs. S uch an arrangement is likely to be more costly and expose
28
consumers to the risks associated with short-term energy market prices175. However, it
173
174
175
HQD-5, Document 6, page 41, Responses 52.1 and 52.2
HQD-3, Document 3, page 24
HQD-5, Document 4, pages 18-19, Response 17.1
66
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
could open up the opportunity to provide modulable/cyclable capacity to wind power and
2
cogeneration projects and should be explored further by HQD.
3
Table 27
Capacity Mix of Proposed Supply Plan
20072008
20092010
20112012
20132014
500
350
500
350
500
350
500
350
36
36
36
36
131
208
321
361
0
70
0
350
210
0
350
350
100
350
350
250
Total Baseload
1087
1654
2007
2197
Modulable/Cyclable
A/O 2002-1
- HQP - Cyclable
CFT for Modulable
Total Modulable/Cyclable
250
0
250
250
400
650
250
400
650
250
400
650
560
560
560
560
47
607
47
607
47
607
47
607
1944
2911
3264
3454
Baseload
A/O 2002-1
- TCE
- HQP - Base
A/O 2003-1
- Biomass
A/O 2003-2
- Wind
A/O 2004-2
- Cogen
Second Wind CFT
Second Cogen CFT
Peaking
Interrputible Power
A/O 2002-1
- TCE
Total Peaking
Total
4
5
6
•
Load Balancing and Cyclable Resources
7
8
HQD has indicated that it could be advantageous to adapt the load balancing service
9
required for wind to meet cyclable requirements 176 and that it will further analyze the
176
HQD-5, Document 6, page 41, Response 52.1
67
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
issue during 2005. This would represent a totally different approach to load balancing
2
services than that envisioned in the proposed Supply Plan. The load balancing services
3
currently envisioned by the Plan do not generate any incremental energy or capacity
4
requirements 177 for HQD but rather just “firm-up” the wind resources contracted for so
5
that they can be considered a firm baseload resource for planning purposes. Under
6
such service arrangements, it would be the responsibility of the load balancing service
7
supplier to have:
•
8
9
The ability to accept (i.e., through the use of storage, ability to use or resell)
excess wind production as required by HQD, and
•
10
The ability to deliver any shortfall in energy experienced by HQD between the
11
firm hourly energy attributed to the wind contracts and actual deliveries received
12
(either from hydro storage or other production sources) up to the level of firm
13
power MWs attributed to the wind contracts (e.g., 351 MW for the first CFT).
14
However, the supplier would also have an expectation that the receipts and deliveries
15
to HQD would balance out over pre-determined time frame such as one year. The cost
16
of such load balancing services would likely reflect the value of the capacity that has
17
effectively been reserved for HQD along with any differences in what would be consider
18
the opportunity value associated with receipts of any excess wind production versus the
19
opportunity costs associated with the delivery of energy to make up any shortfalls in
20
wind energy production178.
21
22
While there is “capacity” associated with such a load balancing service, it must be
23
“reserved” for those instances when there is insufficient wind to produce the MWs of
24
power that the Supply Plan is attributing to the wind contracts. The same capacity can
25
not also be contracted for as a cyclable resource which theoretically could be called
26
upon at the same time. Similarly, the load balancing service envisioned in the current
27
Plan does not increase the total energy available to HQD over a year, as a cyclable
28
resource should be capable of doing. While it may be possible to combine a contract
177
HQD-5, Document 6, page 17, Responses 18.1 and 18.2
These opportunity costs are likely to be similar to those associated with the HQP framework
agreement as discussed in Section 4.2.2
178
68
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
for load balancing services with a contract for cyclable resources such a contract would
2
require the supplier to commit additional capacity to HQD and would – if the cyclable
3
terms of the arrangement were activated – involve net energy deliveries from the
4
supplier to HQD. Both of these requirements would increase the overall costs of the
5
service.
6
7
The alternative would be for HQD to contract with a cyclable resource solely for the
8
purpose of back stopping the wind contracts. In such an event, the cyclable resource
9
would serve to meet HQD’s firm capacity requirement and supplement the energy
10
production available from the wind generators as required. However, under such an
11
approach, HQD would also have to make arrangements to dispose (sell) of any excess
12
wind generation. This would require a different framework agreement with HQP, i.e.,
13
one where excess production is not deemed to be from the Heritage Pool and is subject
14
to resale. Another way for HQD to manage excess wind power production would be to
15
increase the flexibility in its contracts with other suppliers such that their deliveries could
16
be varied more over time and reduced on short notice.
17
18
•
Revised Capacity Requirements
19
20
The revised capacity reserve margin requirements mean that more capacity will be
21
required over the long term (i.e., 2009-2010 through 2013-2014) than identified in
22
HQD’s Application. Table 28 illustrates the potential shortfall assuming a reserve
23
margin of 11% for 2009-2010 and beyond.
69
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 28
Long Term Capacity Balance
(Based on Revised Reserve Requirements)
(MW)
Additional Req.
- Medium Forecast
plus Revised Reserves(1)
Planned Acquisitions (2)
- 2nd Wind CFT
- CFT for Modulable
Capacity
- CFT for CoGen
Capacity
Total
Supply Surplus/(Deficit)
Source:
1
2
20092010
20102011
20112012
20122013
20132014
808
938
1,113
1,334
1,579
210
400
250
400
350
400
350
400
350
400
0
0
100
100
250
610
650
850
850
1000
-198
-288
-263
-484
-579
1) Table 19
2) HQD-3, Document 3, page 26
3
Furthermore, given the earlier comments regarding supply mix, the additional capacity
4
requirements would be for dispatchable as opposed to baseload resources.
5
6
•
Revised Energy Criteria
7
8
Earlier comments 179 also suggested increasing the timeframe used to establish the
9
standard deviation for the long -term energy reliability criteria from 4 to 6 years. Table
10
28 sets out the extent to which HQD’s proposed 2005 Plan meets this more
11
conservative criterion.
179
See Sections 4.1.1 and 4.6
70
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
Table 29
Long Term Energy Balance
Based on Medium Load Forecast Plus Revised Reliability Margin (TWh)
Additional Req. (1)
- Medium Forecast
- One Stanard Dev
Total
Planned Acquistions (2)
- 2nd Wind CFT
- CFT for Modulable
Capacity
- CFT for Cogen
(3)
Capacity
Total
Supply Surplus/
(Deficit)
Source:
2009
2010
2011
2012
2013
2014
2
8.9
10.9
1.9
9.9
11.8
2.7
9.9
12.6
4.3
9.9
14.2
4.3
9.9
14.2
5.6
9.9
15.5
1.3
0.3
1.9
3.2
2.5
3.2
3.1
3.2
3.1
3.2
3.1
3.2
0
0.5
2.1
3.6
3.6
3.6
1.6
5.6
7.8
9.9
9.9
9.9
-9.3
-6.2
-4.8
-4.3
-4.3
-5.6
1) Table 22
2) HQD-3, Document 3, page 38
3) Assumes a one-year advancement of the CFT for Cogen Resources and
an increase in the total cogen resources called for.
1
2
3
Advancing and increasing the capacity for new cogeneration resources as provided for
4
in HQD’s 2005 Plan does not satisfy the 5 TWh long-term limit in all years. However,
5
addressing the additional capacity requirements arising from the revised capacity
6
reserve margin could provide sufficient dispatchable capacity to allow the energy
7
reliability criterion to also be satisfied.
8
9
5.2.3 Conclusions
10
11
Supply Resource Options
12
13
HQD’s primary long-term supply options are hydro, cogeneration, wind energy and
14
combined cycle generation. Of the four sources, hydro, cogeneration and combined
71
Evidence of
William Harper
Hydro-Québec Distribution
Régie File R-3550-2004
1
cycle are reasonably comparable in terms of cost; while wind energy is more
2
expensive 180. However, out of the three cost competitive options only combined cycle
3
and hydro offer the flexibility of being able to operate in a modulable/cyclable, as well as
4
a baseload mode. While increased reliance on wind energy has environmental benefits,
5
it is likely to lead to increases in the costs of electricity to consumers and over-reliance
6
could reduce the flexibility of HQD’s resource base to respond to changes in energy
7
requirements.
8
9
Reliance on Generation External to Québec
10
11
There appears to be some 9 TWh of inter-tie capability181 that could be used to import
12
resources acquired under long -term contracts from sources external to Québec; while
13
still leaving the 15 TWh of capacity that the proposed 2005-2014 Plan relies on for
14
short-term purchases by HQD and HQP.
15
16
Long-Term Capacity Requirements
17
18
Based on the revised reserve margins presented in Section 4.6, HQD’s proposed 2005
19
Plan results in a capacity deficit of roughly 200 to 260 MW for the period 2009-2010
20
through 2011-2012. Assuming a four year lead time for additional long-term resources,
21
CFTs to address the bulk of this deficit would have to be initiated later this year.
22
23
Long-Term Energy Reliability
24
25
HQD’s proposed Supply Plan falls short of meeting the revised long-term energy
26
reliability criteria presented in Section 4.6 in a couple years following 2009-2010.
27
However, this shortfall would likely be resolved by the new resource additions required
28
to address capacity reliability.
180
This conclusion with respect to wind energy is based on the cost of the selected offers from A/O 200302 and the fact that the quoted costs do not include any costs for load balancing.
181
See Section 5.2.1’s Comments
72
Evidence of
William Harper
1
Hydro-Québec Distribution
Régie File R-3550-2004
Supply Mix
2
3
The planned CFT for 400 MW of modulable capacity is critical to maintaining the
4
appropriate balance in HQD’s supply mix. Furthermore, given that the level of baseload
5
generation currently planned for appears to be sufficient, any additional resources
6
acquired to address the capacity shortfall discussed above will also need to be provide
7
for the HQD’s modulable /cyclable capacity requirements.
8
9
Similarly, HQD’s plans for responding to higher-than-forecast load growth should
10
consider the acquisition of additional modulable /cyclable generation. This strategy
11
would be preferable to the one currently proposed in the Plan, which consists of merely
12
advancing the in-service date and increasing the capacity associated with the planned
13
CFT for (baseload) cogeneration.
14
15
In the interest of maintain flexibility in terms of its supply options, HQD should
16
investigate further the implications of contracting for reselling excess baseload capacity.
17
18
Load Balancing Service for Wind Energy
19
20
It is imperative that HQD determine the approach it will be taking with regard to load
21
balancing services and establish the necessary contracts to support its wind energy
22
acquisitions as soon as possible for a number of reasons:
23
•
24
25
Such contracts are required to allow the currently acquired wind energy
generation to be “counted on” for reliability and planning purposes;
•
The approach that HQD decides to take with respect to load balancing services
26
could impact on the evolution of both HQD’s overall supply mix, as well as its
27
capacity requirements, and
28
29
•
The true cost of wind e nergy can only be known after the cost the load balancing
services are known.
73
Evidence of
William Harper
1
6
Hydro-Québec Distribution
Régie File R-3550-2004
Issues From Previous Régie Decisions
2
3
In the last chapter of its Application182, HQD provided follow-up to various issues
4
identified by the Régie in earlier decisions.
5
6
6.1
Evaluation of Transmission Costs for Small Scale Plants
7
8
In Decision-2004-115, the Régie raised an issue with respect to the impact of
9
transmission-related costs (for connection, etc.) on the overall project costs for small-
10
scale plants, and requested that HQD present alternatives in its next Plan. HQD
11
acknowledges this impact but notes that it arises due to the inclusion of connection
12
costs in the evaluation. However, to exclude the cost of such equipment from the
13
evaluation would result in projects being evaluated at less than their real costs. The
14
only other alternative offered by HQD was to initiate a CFT that would be restricted to
15
small scale plants. But, HQD notes that to do so would require direction from the
16
provincial government183.
17
18
Comment
19
20
Arbitrarily e xcluding certain cost elements from the evaluation of the offers received
21
through a CFT would create an unlevel playing field for the various bidders and could
22
also (inadvertently) lead to the selection of a more costly option for electricity
23
consumers. In contrast, while the current CFT evaluation process (as described in
24
HQD-3, Document 4, page 19) includes considerations other than least-cost, these
25
considerations along with their respective weight are explicitly set out in the selection
26
criteria. As result, HQD’s conclusions regarding this issue are reasonable.
182
183
HQD-3, Document 5
HQD-3, Document 5, pages 5- 6
74
Evidence of
William Harper
1
6.2
Hydro-Québec Distribution
Régie File R-3550-2004
Evaluation of Transmission Costs
2
3
In D-2002-117, the Régie raised certain issues regarding the methodology used to
4
evaluate transmission costs and, specifically, the treatment of current plants and the
5
loss of transmission capacity margins. HQD notes that while its original proposal had
6
been to impute to existing plants a cost equivalent to the loss of TransÉnergie’s
7
revenues, this was not done in the A/O 2002-01 CFT184. With respect to the issue of
8
transmission capacity margins, HQD’s position is that the imputation of capacity margin
9
costs to a proposed generation plant responding to a CFT would be inconsistent with its
10
mandate to select proposals based on lowest cost 185.
11
12
Comments
13
14
Presumably any transmission revenues arising from the current use of TransÉnergie’s
15
system by existing generating stations are based on contracts for point to point service
16
as per Hydro-Québec’s Transmission Tariff. Provided the existing generators meet their
17
current contractual obligations, HQD’s current practice of not imputing any opportunity
18
costs to the future lost revenues appears reasonable.
19
20
With respect to the issue of transmission capacity margins, HQD’s proposed approach
21
is reasonable as long as:
22
•
23
24
the transmission costs included in the evaluation represent all of the incremental
costs that TransÉnergie will incur over its long-term planning horizon, and
•
25
the determination of the incremental network facilities that could be required is made
after an allowance for HQD’s expected load growth.
184
185
HQD-3, Document 5, page 7
HQD-3, Document 5, pages 7-8
75
Evidence of
William Harper
1
6.3
Hydro-Québec Distribution
Régie File R-3550-2004
Contract Term
2
3
In D-2002-117, the Régie requested HQD to allow supply contracts of a duration of 15
4
to 25 years with an option for renewal at the discretion of the supplier in order to allow
5
the greatest number of suppliers to respond to the CFT. In the current Application,
6
HQD expresses the opinion that the contract terms should be reduced to 15-20 years.
7
HQD notes that it is difficult to predict the prices of electricity or the state of the
8
supplier’s equipment into the distant future and that allowing renewal at the discretion of
9
the supplier would be disadvantageous to HQD’s customers 186.
10
11
Comments
12
13
HQD’s request to reduce the duration of the contracts to 15-20 years is reasonable.
14
Long-term electricity prices are difficult to forecast and even tying the prices to indices
15
for natural gas prices or electricity prices in adjacent markets may lead to difficulties in
16
the very long term as technology and markets evolve. Similarly, uncertainty with
17
respect to the performance of the resources providing the contracted supply will
18
increase over the longer term as the associated facilities age. Long-term contracts
19
typically include guarantees with respect to the minimum deliveries that the buyer will
20
receive 187. However, this essentially just transfers the risk to the supplier who,
21
presumably, will reflect it in the proposed contract price.
22
23
HQD concerns about granting suppliers the option to renew at their discretion are also
24
valid.
186
187
HQD-3, Document 5, pages 8 - 9.
HQD-3, Document 4, page 6.
76
APPENDIX A
CV FOR ECS CONSULTANT
77
ECONALYSIS CONSULTING SERVICES
William O. Harper
Mr. Harper has over 20 year experience in the design of rates and the regulation of
electricity utilities. He has testified as an expert witness on rates before the Ontario
Energy Board from 1988 to 1995, and before the Ontario Environmental Assessment
Board. He was responsible for the regulatory policy framework for Ontario municipal
electric utilities and for the regulatory review of utility submissions from1989 to 1995.
Mr. Harper coordinated the participation of Ontario Hydro (and its successor company
Ontario Hydro Services Company) in major public reviews involving Committees of the
Ontario Legislature, the Ontario Energy Board and the Macdonald Committee. He has
served as a speaker on rate and regulatory issues for seminars sponsored by the
APPA, MEA, EPRI, CEA, AMPCO and the Society of Management Accountants of
Ontario. Since joining ECS, Mr. Harper has provided consulting support for client
interventions on energy and telecommunications issues before the Ontario Energy
Board, Manitoba Public Utilities Board, Québec’s Régie de l’énergie, British Columbia
Utilities Commission, and CRTC. He has also appeared before the Manitoba’s Public
Utilities Board, the Manitoba Clean Environment Commission and Quebec’s Régie de
l’énergie. Bill is currently a member of the Ontario Independent Electricity System
Operator’s Technical Panel.
EXPERIENCE
Econalysis Consulting Services- Senior Consultant
2000 to present
•
Responsible for supporting client interventions in regulatory proceedings,
including issues analyses & strategic direction, preparation of interrogatories,
participation in settlement conferences, preparation of evidence and appearance
as expert witness (where indicated by an asterix).
78
•
Electricity
o IMO 2000 Fees (OEB)
o Hydro One Remote Communities Rate Application 2002-2004
o OEB - Transmission System Code Review (2003)
o OEB - Distribution Service Area Amendments (2003)
o OEB – Regulated Asset Recovery (2004)
o OEB – Regulated Price Plan (2004/05)
o OEB – Framework for 2006 Electricity Distribution Rates*
o BC Hydro IPP By-Pass Rates
o WKP Generation Asset Sale
o FortisBC – 2005 Revenue Requirement Application
o BC Hydro Heritage Contract Proposals
o BC Hydro’s 2004/05 and 2005/06 Revenue Requirement Application
o BC Transmission Corporation – Open Access Transmission Tariff
Application -2004
o BC Hydro’s CFT for Vancouver Island Generation – 2004
o BC Transmission Corporation – 2005/06 Revenue Requirement
Application
o BC Hydro’s 2005 Resource Expenditure and Acquisition Plan
o Hydro Québec-Distribution’s 2002-2011 Supply Plan*
o Hydro Quebec-Distribution’s 2002-2003 Cost of Service and Cost
Allocation Methodology*
o Hydro Québec-Distribution’s 2004-2005 Tariffs*
o Hydro Québec – Distribution’s 2005/2006 Tariff Application*
o Manitoba Hydro’s Status Update Re: Acquisition of Centra Gas Manitoba
Inc.*
o Manitoba Hydro’s Diesel 2003/04 Rate Application*
o Manitoba Hydro’s 2004/05 and 2005/06 Rate Application*
o Manitoba Hydro/NCN NFAAT Submission re: Wuskwatim*
o Manitoba Hydro – Confirmation of April 2005 Conditional Rate Increase
•
Natural Gas Distribution
o Enbridge Consumers Gas 2001 Rates
o BC Centra Gas Rate Design and Proposed 2003-2005 Revenue
Requirement
o Rate of Return on Common Equity (BCUC-2001)
o Terasen Gas (Vancouver Island) LNG Storage Project (2004)
•
Telecommunications Sector
o Access to In-Building Wire (CRTC)
o Extended Area Service (CRTC)
o Regulatory Framework for Small Telecos (CRTC)
79
•
Other
o Acted as Case Manager in the preparation of Hydro One Networks’ 20012003 Distribution Rate Application
o Supported the implementation of OPG’s Transition Rate Option program
prior to Open Access in Ontario
o Participated in arbitration proceedings providing expert evidence on behalf
of Clients
o Prepared Client Studies on various issues including:
§ The implications of the 2000/2001 natural gas price changes on
natural gas use forecasting methodologies.
§ The separation of electricity transmission and distribution
businesses in Ontario.
§ The business requirements for Ontario transmission
owners/operators.
§ Various issues associated with electricity supply/distribution in
remote communities
Hydro One Networks
Manager - Regulatory Integration, Regulatory and Stakeholder Affairs
(April 1999 to June 2000)
•
•
•
Supervised professional and administrative staff with responsibility for:
o providing regulatory research and advice in support of regulatory
applications and business initiatives;
o monitoring and intervening in other regulatory proceedings;
o ensuring regulatory requirements and strategies are integrated into
business planning and other Corporate processes;
o providing case management services in support of specific regulatory
applications.
Acting Manager, Distribution Regulation since September 1999 with
responsibility for:
o coordinating the preparation of applications for OEB approval of changes
to existing rate orders; sales of assets and the acquisition of other
distribution utilities;
o providing input to the Ontario Energy Board’s emerging proposals with
respect to the licences, codes and rate setting practices setting the
regulatory framework for Ontario’s electricity distribution utilities;
o acting as liaison with Board staff on regulatory issues and provide
regulatory input on business decisions affecting Hydro One Networks’
distribution business.
Supported the preparation and review before the OEB of Hydro One Networks’
Application for 1999-2000 transmission and distribution rates.
80
Ontario Hydro
Team Leader, Public Hearings, Executive Services (April 1995 TO April 1999)
•
•
Supervised professional and admin staff responsible for managing Ontario
Hydro’s participation in specific public hearings and review processes.
Directly involved in the coordination of Ontario Hydro’s rate submissions to the
Ontario Energy Board in 1995 and 1996, as well as Ontario Hydro’s input to the
Macdonald Committee on Electric Industry Restructuring and the Corporation’s
appearance before Committees of the Ontario Legislature dealing with Industry
Restructuring and Nuclear Performance.
Manager – Rates, Energy Services and Environment (June 1993 to April 95)
Manager – Rate Structures Department, Programs and Support Division
(February 1989 to June 1993)
•
•
•
•
Supervised a professional staff with responsibility for:
o Developing Corporate rate setting policies;
o Designing rates structures for application by retail customers of Ontario
Hydro and the municipal utilities;
o Developing rates for distributors and for the sale of power to Hydro’s direct
industrial customers and supporting their review before the Ontario Energy
Board;
o Maintaining a policy framework for the execution of Hydro’s regulation of
municipal electric utilities;
o Reviewing and recommending for approval, as appropriate, municipal
electric utility submissions regarding rates and other financial matters;
o Collecting and reporting on the annual financial and operating results of
municipal electric utilities.
Responsible for the development and implementation of Surplus Power, Real
Time Pricing, and Back Up Power pricing options for large industrial customers.
Appeared as an expert witness on rates before the Ontario Energy Board and
other regulatory tribunals.
Participated in a tariff study for the Ghana Power Sector, which involved the
development of long run marginal cost-based tariffs, together with an
implementation plan.
Section Head – Rate Structures, Rates Department
November 1987 to February 1989
•
With a professional staff of eight responsibilities included:
o Developing rate setting policies and designing rate structures for
application to retail customers of municipal electric utilities and Ontario
Hydro;
o Designing rates for municipal utilities and direct industrial customers and
supporting their review before the Ontario Energy Board.
81
•
•
Participated in the implementation of time of use rates, including the
development of retail rate setting guidelines for utilities; training sessions for
Hydro staff and customers presentations.
Testified before the OEB on rate-related matters.
Superintendent – Rate Economics, Rates and Strategic Conservation Department
February 1986 to November 1987
•
Supervised a Section of professional staff with responsibility for:
o Developing rate concepts for application to Ontario Hydro’s customers,
including incentive and time of use rates;
o Maintaining the Branch’s Net Revenue analysis capability then used for
screening marketing initiati ves;
o Providing support and guidance in the application of Hydro’s existing rate
structures and supporting Hydro’s annual rate hearing.
Power Costing/Senior Power Costing Analyst, Financial Policy Department
April 1980 to February 1986
•
•
Duties included:
?
o Conducting studies on various cost allocation issues and preparing
recommendations on revisions to cost of power policies and procedures;
o Providing advice and guidance to Ontario Hydro personnel and external
groups on the interpretation and application of cost of power policies;
o Preparing reports for senior management and presentation to the Ontario
Energy Board.
Participated in the development of a new costing and pricing system for Ontario
Hydro. Main area of work included policies for the time differentiation of rates.
Ontario Ministry of Energy
Economist, Strategic Planning and Analysis Group
April 1975 to April 1980
•
•
•
? articipated in the development of energy demand forecasting models for the
P
province of Ontario, particularly industrial energy demand and Ontario Hydro’s
demand for primary fuels.
Assisted in the preparation of Ministry publications and presentations on
Ontario’s energy supply/demand outlook.
Acted as an economic and financial advisor in support of Ministry programs,
particularly those concerning Ontario Hydro.
82
EDUCATION
Master of Applied Science – Management Science
•
•
•
University of Waterloo, 1975
Major in Applied Economics with a minor in Operations Research
Ontario Graduate Scholarship, 1974
Honours Bachelor of Science
•
•
•
University of Toronto, 1973
Major in Mathematics and Economics
Alumni Scholarship in Economics, 1972
83