1 1 1 1 1 1 1 1 0 1 0 1 0 1 La Régie de l énergie Demande de Hydro-Québec Dossier R-01- 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? Q. 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. Q. What qualifications do you have that are relevant to your evidence? I am a Professional Engineer with 0 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. Q. 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 0 years. Q. 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 00 MW from Hydro- Québec and proceeded to construct the 0 MW Eel River back to back HVDC station in 1 which enabled interconnection of the NB Power and Hydro-Québec systems. The initial interconnection was expanded to 00MW 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-01- Page 1
1 1 1 1 1 1 1 1 0 1 0 1 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 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 1. 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 00 MW (dependent on the amount of radial load) while the reverse capability towards Québec is limited to the HVDC capability of 0MW. Sales of energy from Hydro-Québec to NB Power exceeded 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. Q. What types of long term contracts have provided supplies from Hydro- Québec to NB Power? Some of the major long-term sale contracts from Hydro-Québec to NB Power include: Firm Power & Energy (Dec 1 Oct ) for 0MW Firm Energy & Capacity Contract (May 1 Oct 1) Minimum (MW) Maximum (MW) 1-0 0 1-0 0 0-1 0 0-0 00 1-0 00 1-0 00 Tertiary Energy, Firm Energy & Capacity Contract (Mar 1 - Mar 001) - 00 MW of Firm capacity - Up to 00 MW of Tertiary energy - Minimum Take or Pay energy of 000 GWh Testimony of Darrell Bishop Régie R-01- Page
1 1 1 1 1 1 1 1 0 1 0 1 0 1 Q. 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 - Present) 00 MW Capacity Contract backed up by NB Power's construction of x0 MW Combustion Turbine units at Millbank, N.B. Block A -> 0 MW Nov - Oct 1 Block B -> 0 MW Nov - Oct 00 Block C -> 00 MW Nov - Oct 0 Tertiary Energy-HQ (Nov - Mar 1) Up to 000 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)-HQ (Dec 1 - July 1) A Buy/Sell option for both parties to scheduled hourly capacity and tertiary energy Tertiary Energy & Firm Capacity & Energy-HQ0 (April 1 - Oct 1) 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. Q. 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-HQ (Nov 1 - Dec 1) An arrangement between NB Power and Hydro-Québec to supply up to 00 MW and up to 00 GWh of energy to MEPCO Monthly Energy-HQ (Sept 1 - Nov 1) Up to 0 GWh of energy Q. In addition to these long term contracts have there been any contracts of shorter terms? Yes, there have been some 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-01- Page
1 1 1 1 1 1 1 1 0 1 Q. 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 1. HQ Sales to NB Power (MWh) NB Power Sales to HQ (MWh) Firm Economy Firm Economy -1,0, 0 1,1, -,,1 1,00,0,0,1 1-,000,1 1,1 00 1,,0 1-,0 1,,1, 1, 1-0,, 0,0 1-1,,0,, 1, 0 1-0,00,0, 0,0 1-,1 1,1,0 0 1,00 1-,0,,, 1,0, 1-000,,1, 00 1,0 000-01* 0,00,00 1,,1 1,,0 1,,01 1,,0,1 *prorated projection Q. 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. Q1. 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-01- Page
1 1 1 1 1 1 1 1 0 1 0 1 0 1 Q1. 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. Q1. You have explained the historical relationship between NB Power and Hydro-Québec, can you now explain how the situation has changed? In 1 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 1 FERC issued Orders and which specified the rules for open and non-discriminatory transmission access to all parties. Q1. 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 1 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 1 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 1 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 000. Hydro-Québec accepted that this was sufficient to meet their reciprocity requirement and publicly announced at the CEA RTO workshop in May 000 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-01- Page
1 1 1 1 1 1 1 1 0 1 0 1 0 1 Q1. 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. Q1. 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. Q1. 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. Q1. 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. Q0. 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. Q1. 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-01- Page
1 1 1 1 1 1 1 1 0 1 0 1 Q. 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. Q. 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 Hydro- Québec 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. Q. 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. Q. 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.1 Ontario. 1 New York 1.00.00 New England.0 New Brunswick.1 1 0 hours of uncongested transmission at $1/MWh. 0 hours of uncongested transmission from HQ to other interconnections, with Feb. 001 hourly rates. Testimony of Darrell Bishop Régie R-01- Page
1 1 1 1 1 1 1 1 0 1 0 1 Q. 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. Q. 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. Q. 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. Q. 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. Q0. Has Hydro-Québec responded? Yes, by a letter to FERC. In the letter to FERC Hydro-Québec states that Section of Bill (amending Section 1 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. FERC Docket No. ER-1-01, Dec., 000. Errata to the Protest of Enron Power Marketing, Inc. Dec., 000, p.. FERC Docket No. ER-1-1, Dec. 1, 000. Motion for Leave to File Answer and Answer of H.Q. Energy Services (U.S.) Inc., p. Testimony of Darrell Bishop Régie R-01- Page
Q1. 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-01- Page