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La Régie de l’énergie
Demande de Hydro-Québec
Dossier R-3401-98
Hydro-Québec tariff application
Evidence of Darrell Bishop
Q1.
What is your name and position?
My name is Darrell Bishop and I am employed as Director – Generation Marketing at NB
Power Corporation?
Q2.
What is the nature of your evidence?
I will outline the history of NB Power’s business relationship with Hydro-Québec,
discuss the current state of the regional northeast power market and explain the
importance to that market of a fair and non discriminatory point to point transmission
service through and out of Québec.
Q3.
What qualifications do you have that are relevant to your evidence?
I am a Professional Engineer with 30 years of experience in the electric utility business,
during which I have negotiated and executed many different types of power sale and/or
purchase agreements. I currently am responsible for the scheduling of NB Power
generation resources to meet in province requirements and the operation of a trading floor
through which NB Power interacts with other participants in the northeast regional
market. A CV is attached which provides greater detail on my professional experience.
Q4.
What is the relationship between NB Power and Hydro-Québec?
NB Power and Hydro-Québec have developed interconnections between the utilities and
transacted business across those interconnections that have been beneficial to customers
of both utilities for the past 30 years.
Q5.
How did these interconnections come about?
The completion of the Churchill Falls generating station in Labrador provided HQ with
surplus energy. NB Power entered a contract to purchase some 300 MW from HydroQuébec and proceeded to construct the 320 MW Eel River back to back HVDC station in
1972 which enabled interconnection of the NB Power and Hydro-Québec systems. The
initial interconnection was expanded to 500MW capability towards New Brunswick by
installing switching equipment that enabled the direct radial connection of a portion of
the NB Power system to be synchronized with the Hydro-Québec system.
Testimony of Darrell Bishop
Régie R-3401-98
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For the next several years NB Power purchased, from Hydro-Québec, energy to replace
thermal energy. The pricing was a function of the avoided thermal energy cost. It was
beneficial to NB Power because it reduced its generation cost and was beneficial to
Hydro-Québec because it provided a market for its hydro energy.
In the early 1980’s Hydro-Québec was developing the La Grande generating complex
and sought to increase its interconnection capability so that it would be able to market
surplus energy that would come from the project. The two utilities worked together to
develop the Madawaska High Voltage Direct Current (HVDC) interconnection which
was constructed by Hydro-Québec in 1985. It also included switching potential for the
direct radial connection of NB Power local area load to Hydro-Québec. As a result the
total interconnection capability from Hydro-Québec to NB Power increased to about
1100 MW (dependent on the amount of radial load) while the reverse capability towards
Québec is limited to the HVDC capability of 780MW.
Sales of energy from Hydro-Québec to NB Power exceeded 6 TWh per year in each of
the ensuing two years following completion of the Madawaska interconnection; the
increased interconnection capability has been used to support various long term and short
term transactions since then.
Q6. What types of long term contracts have provided supplies from HydroQuébec to NB Power?
Some of the major long-term sale contracts from Hydro-Québec to NB Power include:
Firm Power & Energy (Dec 1987 – Oct 1990) for 50MW
Firm Energy & Capacity Contract (May 1988 – Oct 1994)
Minimum
(MW)
Maximum
(MW)
1988-89
50
50
1989-90
100
100
1990-91
100
100
1991-92
100
200
1992-93
100
300
1993-94
0
300
Tertiary Energy, Firm Energy & Capacity Contract (Mar 1998 - Mar 2001)
- 300 MW of Firm capacity
- Up to 300 MW of Tertiary energy
- Minimum Take or Pay energy of 4000 GWh
Testimony of Darrell Bishop
Régie R-3401-98
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Q7. What types of long term contracts have provided supplies from NB Power to
Hydro-Québec?
Some of the major long term contracts for supply from NB Power to Hydro-Québec
include:
System Sale Contract (May 1990 - Present)
400 MW Capacity Contract backed up by NB Power's construction of 4x100 MW
Combustion Turbine units at Millbank, N.B.
Block A -> 100 MW Nov 1991 - Oct 1998
Block B -> 100 MW Nov 1991 - Oct 2002
Block C -> 200 MW Nov 1991 - Oct 2011
Tertiary Energy-HQ23 (Nov 1991 - Mar 1993)
Up to 2000 GWh of energy made available to Hydro-Québec for storage in its
reservoirs. HQ had the option to purchase or re-deliver to NB Power.
Firm Tertiary Energy (Hourly Capacity)-HQ24 (Dec 1992 - July 1997)
A Buy/Sell option for both parties to scheduled hourly capacity and tertiary
energy
Tertiary Energy & Firm Capacity & Energy-HQ30 (April 1994 - Oct 1995)
A banking arrangement whereby NB Power delivered energy to Hydro-Québec
and re-purchased at a later date. This was utilized by NB Power to replace
generation during the Pt Lepreau nuclear station Spacer Location and Relocation
(SLAR) outage.
Q8.
Have there been any contracts involving other parties?
Yes. There have been three way arrangements between NB Power, Hydro-Québec and
Maine utilities to delivery energy into the New England market. Examples of these are:
Tertiary Energy-HQ32 (Nov 1994 - Dec 1995)
An arrangement between NB Power and Hydro-Québec to supply up to 700 MW
and up to 600 GWh of energy to MEPCO
Monthly Energy-HQ53 (Sept 1998 - Nov 1999)
Up to 1900 GWh of energy
Q9. In addition to these long term contracts have there been any contracts of
shorter terms?
Yes, there have been some 35 additional shorter term contracts have been transacted
between the two parties. These purchase and/or sale arrangements have primarily
involved tertiary energy, however other products have included rescheduled energy,
supplemental energy, assured tertiary energy, short-term power and capacity.
Testimony of Darrell Bishop
Régie R-3401-98
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Q10. You have indicated many transactions of different types with the potential to
have contracts going in different directions at the same time. How much
business has been transacted across the Hydro-Québec - NB Power
interconnection?
The table below summarizes the transactional flow of energy between the systems for the
past ten years. The information is by fiscal year beginning April 1 and ending March 31.
9
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01*
HQ Sales to NB Power
(MWh)
Firm
Economy
3,503,542
0
3,462,163
1,800
2,000,159
132,312
332,068
1,557,413
0
2,493,568
1,665,905
4,535,572
350,200
3,330,872
976,188
1,519,560
2,075,811
2,545
3,559,971
695,359
907,600
3,200
18,833,607 14,272,201
NB Power Sales to HQ
(MWh)
Firm Economy
1,149,772
25,850 2,730,198
900 1,161,760
4,875
15,988
850 542,802
1,160
0
0
47,880
0 169,900
83,384 1,240,649
200 281,408
15,733
66,781
132,952 7,407,138
*prorated projection
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Q11. Would this level and type of business also occur across other Hydro-Québec
interconnections?
Yes, it is my understanding that each of the interconnections would have been developed
through agreements between Hydro-Québec and parties in the interconnected utilities.
The agreements would specify who would pay for required interconnection facilities and
who would own what facilities. There also would usually be an additional agreement for
capacity and/or energy under terms that would make proceeding with the interconnection
beneficial to the contracting parties.
Q12. Would this additional capacity and/or energy contract be for a specified term
or open ended?
They would be for a specified term after which the space on the interconnection could be
used for new transactions. Some of the original agreements to develop the
interconnections are still active such as the Churchill Falls agreement, the Vermont
Electric Power Company (VELCO) agreement and the New England Phase II agreement.
Testimony of Darrell Bishop
Régie R-3401-98
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Q13. Would the owners of the interconnection facilities control who would be able
to transact across the facilities?
Originally yes, but in recent years this situation has changed.
Q14. You have explained the historical relationship between NB Power and
Hydro-Québec, can you now explain how the situation has changed?
In 1992 the United States passed the Federal Power Act which provided for wholesale
competition and empowered the Federal Energy Regulatory Commission (FERC) to
regulate its implementation. In 1996 FERC issued Orders 888 and 889 which specified
the rules for open and non-discriminatory transmission access to all parties.
Q15. Has this affected transactions to the United States for Canadian utilities?
Yes, significantly. In the past NB Power did all of its business into the New England
Power Pool (NEPOOL) with the agreement of the Maine Electric Power Company
(MEPCO) which owned the interconnection from the New Brunswick border to
NEPOOL. Since 1996 transactions have occurred with many different power marketers.
The power marketers arrange for transmission separately via MEPCO’s Open Access
Same-time Information System (OASIS) and transact for capacity and/or energy from
NB Power at the NB/Maine border. This would have been similar for Hydro-Québec and
their relationship with the New York Power Authority (NYPA), VELCO, Ontario Hydro
and the New England Phase I and II owners.
In 1997 Hydro-Québec implemented its open access transmission tariff and applied to
FERC for a marketers license for its US marketing subsidiary. The license was granted
and Hydro-Québec US (HQUS) has been able to do business directly with buyers and
sellers in the United States at market prices.
In 1998 NB Power implemented its “Through and Out Transmission Tariff” which
opened the NB Power transmission system for parties to transact business. Hydro-Québec
initially objected to the tariff for various reasons, the key issue being that the through rate
was higher than the out rate. Hydro-Québec refused to grant NB Power access to the
Hydro-Québec tariff on the grounds that NB Power did not provide reciprocal service.
NB Power Transmission Business Unit agreed to discount the through rate to be
equivalent to the out rate. This discount is available for all through paths and has been
posted on the NB Power OASIS since March 2000. Hydro-Québec accepted that this was
sufficient to meet their reciprocity requirement and publicly announced at the CEA RTO
workshop in May 2000 that HQ and NB Power reached agreement on reciprocal open
access.
Today power marketers can gain transmission access across multiple systems to
participate in the expanded regional market.
Testimony of Darrell Bishop
Régie R-3401-98
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Q16. How would you characterize this expanded regional market?
Theoretically the expanded market could include the entire Eastern Interconnection from
Florida to Saskatchewan to Nova Scotia. Practically, from the perspective of Québec this
expanded regional market is comprised of all market areas within one transmission wheel
from Québec. Using this one wheel guide the expanded market includes the separate
market areas of Pennsylvania-Jersey-Maryland (PJM) and the Alliance RTO as well as
the market areas immediately adjacent to Québec, namely Ontario, New York, New
England and the Maritimes.
Q17. What is the nature of your business in this expanded northeast market?
Our business is typical of most other business conducted between and across market
areas. It is done through bilateral contracts between market participants and the power
transacted is transmitted via point to point transmission service.
Q18. With the development of hourly competitive bid markets in New England,
New York and PJM has the nature of this business changed?
Yes, it has been changing rapidly and is continuing to change. Market rules in each
market area are still evolving, the number of market participants is increasing.
Participants are much more concerned about price, volume and availability risks in the
market. The terms and conditions of transactions can become much more complex as
marketers attempt to manage their risk profiles.
Q19. Have you utilized the Hydro-Québec point to point transmission service to
access this expanded market?
Yes, NB Power has done various transactions across Québec with different power
marketers. These have been to and from New York and from different sources within
Québec. When access to Ontario is available after the market opens there later this year,
NB Power will consider transactions with that market.
Q20. Has this point to point utilization ever been at discounted rates?
No. I am not aware that the Hydro-Québec tariff has ever been discounted for use by NB
Power or its trading partners.
Q21. Has Hydro-Québec utilized NB Power point to point transmission service to
access markets through New Brunswick?
Yes. Hydro-Québec has taken delivery of energy from Nova Scotia that was transmitted
via the New Brunswick system on a path reserved by a third party. Hydro-Québec has at
various times reserved point to point transmission between Québec and Nova Scotia in
both directions. Also Hydro-Québec has reserved point to point transmission through
New Brunswick to New England from both Nova Scotia and Québec.
Testimony of Darrell Bishop
Régie R-3401-98
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Q22. Has this point to point utilization ever been at discounted rates?
Yes. NB Power practices the discounting of point to point transmission rates in order to
increase usage when the transmission tariff is perceived to be blocking trade.
Q23. Has Hydro-Québec changed the way that it conducts business in these
markets?
Yes. In the past, as I have previously indicated, almost all transactions from HydroQuébec were a combination of long and medium term bilateral arrangements for blocks
of energy. In the last year, Hydro-Québec has implied and demonstrated to NB Power
that, if energy is available, any future dealings will be short-term (i.e. hourly, daily) in
nature and based on the higher of New York or New England market prices. Also,
following the expiration of firm contracts into New England through its Phase II
interconnection, HQ has publicly stated its intention not to offer any longer term sales
into that market.
Q24. Why is this of particular concern to NB Power?
In order to procure longer-term capacity and energy, NB Power will be required to
purchase contracts from private generators inside Québec and/or from generators within
ISO New England, ISO New York, or Ontario. Longer-term transactions are particularly
applicable during maintenance outages on NB Power's larger generating stations.
Because of technical limitations that restrict flow conditions on the MEPCO transmission
line, South to North energy flow from New England into New Brunswick may not be
possible. As a result the only access to energy from outside the Maritimes for New
Brunswick may be from or through Québec.
Q25. Do you view the magnitude of the Hydro-Québec tariff as a barrier that
restricts access from the Maritime area to the expanded market?
Yes. An excessively high tariff makes the wheeling of capacity and energy through
Québec uneconomical and thus eliminates potential trading markets. As shown in the
following table the Hydro-Québec tariff is the highest in the northeast region:
$Cdn/kW-yr.)
Québec
75.18
Ontario
8.761
New York
41.00 – 64.002
New England
22.50
New Brunswick
36.15
36
1
2
8760 hours of uncongested transmission at $1/MWh.
8760 hours of uncongested transmission from HQ to other interconnections, with Feb. 2001 hourly rates.
Testimony of Darrell Bishop
Régie R-3401-98
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Q26. Who regulates market access in the United States?
The Federal Energy Regulatory Commission (FERC) regulates access to the regional
wholesale market in the United States.
Q27. Who regulates market access in Canada?
FERC does not have jurisdiction in Canada, nor is there federal regulation of the interprovincial wholesale market in Canada. This responsibility rests with respective
provincial regulators. The Régie is empowered in Québec to regulate the transmission
services provided by Hydro-Québec. This responsibility is not limited to services to
customers inside Québec. The Régie also has an obligation to the regional wholesale
market that is very similar to that of the FERC.
Q28. In carrying out its obligations to the regional wholesale market should the
Régie consider the rulings of FERC and make its rulings in a consistent manner?
Yes. The Régie’s role is to regulate transmission rates and ensure that rates are charged in
a non-discriminatory manner. Utilizing the principles and rules of FERC will contribute
to the efficient development and operation of the expanded wholesale market both in
Canada and the United States.
Q29. Are your concerns with the Hydro-Québec tariff shared by others? Who?
How?
Enron Power Marketing Inc. and Coral Power L.L.C. have intervened with FERC in
HQUS’s application for market based rates for sales in the US. They have indicated that
transmission access “through service” is priced to discriminate against HQ’s
competitors.3
Q30. Has Hydro-Québec responded?
Yes, by a letter to FERC. In the letter to FERC Hydro-Québec states that “Section 6 of
Bill 116 (amending Section 31 of the Régie Act) reaffirms that it is within the exclusive
jurisdiction of the Régie to fix or modify the rates and conditions for the transmission of
electric power by Hydro-Québec and examine any complaint concerning transmission
rates or conditions.”4
3
FERC Docket No. ER97-851-012, Dec. 11, 2000. Errata to the Protest of Enron Power Marketing, Inc.
Dec. 7, 2000, p. 7.
4
FERC Docket No. ER97-851-12, Dec. 21, 2000. Motion for Leave to File Answer and Answer of H.Q.
Energy Services (U.S.) Inc., p. 6
Testimony of Darrell Bishop
Régie R-3401-98
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Q31. Will you please summarize your position regarding the current application?
The administration and pricing of point to point services on the Hydro-Québec system
should facilitate the northeast wholesale market. The current application is a barrier to the
competitive trading of energy and capacity in the northeast market. Non discriminatory
access is a cornerstone of a fair and efficient market and we urge the Régie to make sure
that this principle is recognized and affirmed. We urge the Régie to declare in its ruling
that all market participants have access to point to point service in a manner that is non
discriminatory and at a price that is fair, reasonable and low enough to encourage trade.
Testimony of Darrell Bishop
Régie R-3401-98
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