Re: British Columbia Transmission Corporation (“BCTC ... · Interconnected Operations Services to...
Transcript of Re: British Columbia Transmission Corporation (“BCTC ... · Interconnected Operations Services to...
-
British Columbia Transmission Corporation, Suite 1100 Four Bentall Centre, 1055 Dunsmuir Street,
Vancouver, BC V7X 1V5 www.bctc.com
Cameron Lusztig Director, Regulatory Affairs Phone: 604 699-7444 Fax: 604 699-7537 E-mail: [email protected]
April 13, 2005
Mr. Robert Pellatt Commission Secretary British Columbia Utilities Commission P.O. Box 250 600 – 900 Howe Street Vancouver, BC V6Z 2N3
Dear Mr. Pellatt
Re: British Columbia Transmission Corporation (“BCTC”) Project No. 3698350 - Order No. G-81-94
Application for an Open Access Transmission Tariff and
British Columbia Hydro and Power Authority Interconnected Operations Services to British Columbia Transmission Corporation
BCTC is writing to note an erratum in its Reply Submissions filed April 12, 2005. In paragraph 50 of the Reply Submissions (in the last line on page 20), the word “lower” should be “higher.” Yours truly, Original signed by: Cameron Lusztig Director, Regulatory Affairs cc: Registered Intervenors
-
BRITISH COLUMBIA TRANSMISSION CORPORATION
Project No. 3698350 – Order No. G-81-04 Application for an Open Access Transmission Tariff
and
BRITISH COLUMBIA HYDRO AND POWER AUTHORITY Interconnected Operations Services to
British Columbia Transmission Corporation
REPLY SUBMISSIONS OF
BRITISH COLUMBIA TRANSMISSION CORPORATION
April 12, 2005
-
TABLE OF CONTENTS 1.0 POLICY FRAMEWORK OF PROPOSED OATT ..........................................................3 2.0 NITS/PTP RATE DESIGN..............................................................................................4
2.1 General Allocation Issues ............................................................................................5 2.2 Attachment J................................................................................................................6
3.0 NETWORK CUSTOMER USE OF PTP SERVICE (THE AESO’S ISSUES).................8 3.1 Receipt and Delivery Point Flexibility (“Hubbing” and “Parking”) ............................12 3.2 Network Economy.....................................................................................................15 3.3 “Free Option” ............................................................................................................19 3.4 Intertie Limits, Holding Limits (the AESO’s “Proposed Solution”)............................21 3.5 Tariff Enforcement ....................................................................................................23
4.0 LONG-TERM POINT-TO-POINT SERVICE...............................................................25 5.0 LONG-TERM SHAPED SERVICE ..............................................................................25 6.0 SHORT-TERM RATE DESIGN ...................................................................................26 7.0 NETWORK UPGRADE POLICY.................................................................................26
7.3 “Free Riding” on Network Upgrades, “Pioneer Rights,” and “System Benefits” ........27 7.5 Letter of Credit ..........................................................................................................28
8.0 DEFERRAL CREDIT ...................................................................................................28 9.0 BC CLEAN RATE ........................................................................................................28 10.0 BUSINESS PRACTICES ..............................................................................................29 11.0 INVESTMENT POLICY, OPEN SEASON, AND INTERCONNECTIONS.................30
11.2 Generator Interconnection Service .............................................................................30 BCTC’s Role in Reviewing the CEAP Process ..................................................................30 Initiating the Process with a Queue Cluster Window..........................................................31 Integrating the Interconnection and Transmission Queues .................................................32 Getting Value from Paralyzing the Queue for 180 Days.....................................................33 Relief from OATT for 2005 CEAP....................................................................................37
12.0 ANCILLARY SERVICES AND IOS ............................................................................38
-
BRITISH COLUMBIA TRANSMISSION CORPORATION Project No. 3698350 – Order No. G-81-04
Application for an Open Access Transmission Tariff and
BRITISH COLUMBIA HYDRO AND POWER AUTHORITY Interconnected Operations Services to British Columbia Transmission Corporation
REPLY SUBMISSIONS OF
BRITISH COLUMBIA TRANSMISSION CORPORATION
1. While individual Intervenors have advocated discrete changes to the proposed
OATT tariff, there appears to be agreement among all parties that, over all, the terms and
conditions of the proposed OATT, if approved by the Commission and implemented, will
enhance the non-discriminatory, open access to transmission services currently provided
through BC Hydro’s WTS Tariff. British Columbia Transmission Corporation (“BCTC” or
the “Corporation”) believes the OATT, in the terms proposed, would make significant strides
towards realizing certain important objectives identified in the Provincial Government’s
“Energy Plan”, Energy for our Future: A Plan for BC (the “Energy Plan”) in a manner
consistent with the rate-making objectives that BCTC set together with its stakeholders.
2. These reply submissions generally follow the framework of the Hearing Issues
List, Exhibit A-24, and the headings have been numbered to correspond with BCTC’s main
submissions. The prehearing written process, Intervenor opening statements, and the
establishment of the hearing issues list were helpful to BCTC in preparing its main
submissions, and enabled BCTC to anticipate a number of the arguments that were ultimately
made by Intervenors. Accordingly, many of the arguments made by Intervenors have been
addressed in BCTC’s main submissions, and BCTC has sought, in these reply submissions,
to avoid unnecessary repetition. The meaning of acronyms used in these reply submissions
remains the same as in the Application, Exhibit B1-1 (the “Application”).
3. BCTC believes it is important, at the outset, to address two related
submissions made by BC Hydro. BC Hydro states, first of all, (para. 8) that “[i]n the absence
of an opportunity to cross-examine those OATT customers and potential OATT customers
-
- 3 -
whose views informed BCTC’s Application, their ‘implicit testimony’ ought to be given little
or no weight.” BC Hydro further states (in para. 9) that “the Commission ought to favour
BC Hydro’s position on all issues where no potential OATT customer takes a position, or
where all potential OATT customers participating in the hearing are aligned with BC Hydro.”
4. These arguments reduce to the proposition that BC Hydro’s mere attendance
at the hearing is sufficient to have its position prevail. BCTC’s proposed OATT represents a
balance achieved following extensive consultation with stakeholders, and BC Hydro’s
position trivializes the consultation process. BC Hydro can be expected to take an active role
in this proceeding because it is, to date, the dominant user of the transmissio n system.
However, neither BC Hydro’s status as the dominant user, nor its mere appearance at this
hearing provides any basis to assert that the evidence given in support of proposals made by
BCTC or by other Intervenors to improve the tariff for use by other customers or potential
customers is entitled to little weight in the event of a conflict with BC Hydro’s evidence or
interests. BC Hydro cites no authority for such a proposition, and BCTC does not expect that
it is a proposition that BC Hydro will advance in its own rate design proceedings. BCTC
submits that the Commission’s jurisdiction to consider BCTC’s proposals is not restricted in
the manner contemplated by BC Hydro; the Commission’s role is to consider all of the
evidence without regard to BC Hydro’s self-proclaimed “most favoured party” status.
1.0 POLICY FRAMEWORK OF PROPOSED OATT
5. BCTC does not propose to canvass in these reply submissions all of the policy
issues addressed in its primary submissions. The Intervenors generally endorse or implicitly
accept the policy approach taken by BCTC in developing the proposed OATT.
6. CPC states in its argument (at p. 3) that “[t]here is virtually no consideration
of economic efficiency in the LTF PTP rate” and the “Commission should instruct BCTC to
develop design elements…that will promote efficient use of the transmission system and
efficient development of power resources in British Columbia by parties other than just
BC Hydro.” BCTC does not require a direction from the Commission to consider design
elements that promote efficient pricing and use of transmission facilities. BCTC discusses the
policy drivers and its pricing objectives for the OATT at pages 16 and 17 of its Application
-
- 4 -
and paragraphs 5-11 of its main submissions, and considers efficiency to be one of its
primary objectives. BCTC’s proposals were based on criteria that are consistent with those
mentioned by CPC.
Ex. B1-1, Application, p. 16-17
7. The AESO is essentially alone in its criticism of the policy underpinnings of
the proposed OATT. In particular, the AESO disagrees with BCTC’s assessment that it
would be inappropriate to make changes to the terms and conditions of the tariff if the
changes benefited access to 5% of the market and negatively impacted access to the
remaining 95% (see p. 5). In an ideal world, BCTC would reduce seams with Alberta as well
as with the United States, but in many cases it is simply not realistic to do so. Alberta has
chosen to embark on the development of a unique market structure and to provide
transmission services that are not comparable to the services provided in the rest of the
Western Interconnection (e.g. firm transmission rights out of Alberta cannot be reserved in
advance). Having declared itself to be the “odd man out”, the AESO cannot be heard to
complain when BCTC prefers to align its tariff structure with those who are already closely
aligned, and who provide comparable transmission service.
Evidence of Mr. Mansour, Tr. 6 p. 464 ll. 6-16; p. 469 l. 24 - p. 470 l.5
8. Apart from the AESO’s disagreement with BCTC’s policy on the issue of
seam reduction addressed in the preceding paragraph, the AESO’s issues relate not to
whether the policy drivers underlying the proposed OATT are correct, but to whether
BCTC’s proposed OATT actually achieves the policy objectives BCTC set for itself together
with stakeholders. The AESO’s issues are addressed in Part 3.0 of both BCTC’s primary
submissions and these reply submissions.
2.0 NITS/PTP RATE DESIGN
9. BCTC’s main submissions anticipated most of the issues raised by Intervenors
with respect to long-term rate design (PTP and NITS) under the proposed OATT. Discrete
submissions made by Intervenors are addressed below.
-
- 5 -
2.1 General Allocation Issues
10. The JIESC notes (at p. 2) its opposition to LTF PTP billing determinants and
the BC Clean rate, remarking that “unfortunately, tariff rate design is a zero-sum game and
any benefits provided to the LTF PTP customers and IPPs come at the expense of BC Hydro,
the Network Integrated Transmission Services customer (NITS), and is ultimately paid by all
of BC Hydro’s customers.” The JIESC’s concerns require consideration with respect to
proposals, such as those advanced by the AESO, that simply seek to reallocate costs or
capacity among customers; however, rate design is not simply a “zero-sum game”. Some
proposals can be reasonably expected to affect the demand for transmission services and
result in a positive or negative effect on other customers. For example, proposals to increase
the allocation of fixed costs to the LTF PTP class will naturally make it more difficult to sell
a service that does not have a substantial demand today, with the result that there is a larger
fixed cost to be borne by NITS customers. Other proposals, such as BCTC’s proposed BC
Clean Rate (as explained in BCUC IR 1 19.3), are designed to increase utilization and
revenue at the margin to the benefit of all customers.
Exhibit B1-4, BCUC IR 1 19.3
11. The JIESC addressed at pages 8-9 BCTC’s proposed PTP allocation
(discussed starting at para. 24 of BCTC’s main submissions). While BCTC took some
comfort from the fact that BC Hydro did not seek an increase in the PTP rate, this is not the
primary underpinning of BCTC’s argument. Rather, raising the PTP rate is unlikely to result
in any substantial increase in revenues, based on the self-evident proposition that increasing
the price of a product that is currently hard to sell does not intuitively lead to the expectation
of increased revenue.
Ex. B1-18, Rebuttal Evidence of Dr. Orans, p. 11
Evidence of Mr. Lusztig, Tr. 8 p. 875 l. 6 – p. 876 l. 10; Tr. 8 p.1043 l. 6 – p. 1045 l. 23
12. The JIESC addresses the issue of cost allocation among NITS customers, and
(at p. 10) recommends that the Commission “establish a simple monthly demand charge for
NITS service.” This suggested change to the current method of allocating among NITS
-
- 6 -
customers is different from that advanced by Messrs. Saleba and Piliaris, was not explored
during the hearing, and was not developed through any evidence. Moreover, BCTC is not
clear as to how this approach would differ from the NITS allocation in the proposed OATT
(which is the same as the approach taken in the WTS, and based on the approach taken in the
FERC Order No. 888 Pro Forma tariff). The proposed OATT already has a monthly capacity-
based allocation mechanism (that uses the monthly load ratio shares).
13. The CPC states (at p. 5) that “BCTC has essentially acted as BC Hydro’s
agent by virtue of the fact that any revenue from Short-Term PTP capacity that BCTC sells is
allocated to BC Hydro.” The suggestion that BCTC acts as BC Hydro’s “agent” is a
specious argument that fails to consider the real issues involved in the tariff rate design. The
allocation of ST PTP revenues under the OATT reflects the rate design balance struck in
FERC Order No. 888. ST PTP revenues compensate Network Customers for providing the
financial “backstop” to the entire Transmission Revenue Requirement, as described in
paragraphs 32-34 of BCTC’s main submissions. If there were more than one Network
Customer, all the Network Customers, and not only BC Hydro, would benefit from ST
revenues. This is part of the balance of interests reflected in the proposed OATT.
14. The IPPBC complains (at para. 4) that “[t]he allocation of the transmission
assets that are primarily used to connect BC Hydro’s remote generating projects on the Peace
and Columbia Rivers to the Lower Mainland (“GRTAs”) distorts an IPPs cost of using
BCTC’s Point-to-Point service (“PTP”).” BCTC notes that the cost of the GRTAs, as
determined by the Commission in 1997, are allocated to BC Hydro generation and are not
included in the Transmission Revenue Requirement.
BC Hydro Wholesale Transmission Service Decision, April 23, 1998, p. 18
BCTC Capital Plan Application, May 2004, p. 147 (as attached to Ex. B1-6, CPP IR 2 3.3.1)
2.2 Attachment J
15. BC Hydro asserts (at para. 50) that the issues with respect to Attachment J
“need not be resolved prior to BC Hydro’s next NITS application, and BC Hydro expects that
-
- 7 -
a resolution can be achieved between BC Hydro and BCTC by that time.” BCTC submits
that the NITS application is irrelevant to the issues with respect to Attachment J, and the
resolution of Attachment J need not be delayed. The NITS application results in the
execution of a NITS service agreement. The NITS service agreement provides for the
allocation of transmission capacity to BC Hydro in accordance with the provisions of that
service agreement, during the term of the NITS service agreement. What the NITS service
agreement does not address, however, is the reservation of transmission capacity beyond the
term of the NITS agreement, particularly reservations of capacity for resources that are not
designated as Network Resources within that term. As described at paragraphs 39-47 of
BCTC’s primary argument, the proposed OATT, like the FERC Order No. 888 Pro Forma
tariff, contemplates the reservation of transmission capacity to meet reasonable load growth
needs beyond the terms of the existing NITS service agreement through the submission of
reasonable 10-year load growth forecasts and reasonable resource plans to meet that load
growth. These forecasts will, for any NITS service contract that has less than ten years to
run, extend beyond the term of the NITS service agreement. Attachment J is designed to
accommodate these forecasts and to provide a mechanism to consider the reasonable needs of
the Network Customer (for capacity, for which it has not yet contracted) when determining
whether to restrict the rollover rights of a PTP customer in the time period contemplated by
the NITS customer’s ten-year forecast.
16. BCTC rejects BC Hydro’s view that issues surrounding Attachment J should
be resolved between BC Hydro and BCTC alone. BCTC’s submissions on Attachment J
(specifically, paras. 43-47 of the primary submissions) explain the relevance of Attachment J
to other customers, namely, that their rollover rights and access to the system may be limited.
As this issue is important for all stakeholders, it should be resolved in the present public
hearing process. BCTC submits that the parties to this proceeding have adduced the
evidence necessary for the Commission to make an informed decision.
17. The CECBC (at pp. 4-6) has sought to link Attachment J to other aspects of
the proposed OATT, namely, the billing determinants and the BC Clean rate. BCTC is
unable to understand the CECBC’s arguments in this regard, and submits that no links exist.
-
- 8 -
The Commission can consider Attachment J independently of issues with respect to the
billing determinants and the BC Clean rate and vice versa.
3.0 NETWORK CUSTOMER USE OF PTP SERVICE (THE AESO’S ISSUES)
18. In this Part of the reply submissions, BCTC addresses the issues raised by the
Alberta Electric System Operator (“AESO”) and Trans Canada Energy (“TCE”) in respect of
the Network Customer’s use of the transmission system. BCTC does not address the
arguments raised by the JIESC (at p. 15) and CECBC (at pp. 9-10) on these issues because
BCTC is in substantial agreement with them. While BCTC shares some of the AESO’s
concern with respect to the potential for abuse of Network Economy, and for the proper
release of unused reserved firm capacity for the non-firm market, it believes that its proposals
(set out at paras. 75-82 of the main submissions) are sufficient at this point to address this
concern, and that no wholesale revision of the tariff, as proposed by the AESO, is either
warranted, or desirable.
19. The AESO’s argument starts from the premise that the principle of adverse
effect discrimination employed in the interpretation of the Canadian Charter of Rights and
Freedoms and Human Rights legislation is directly applicable to the regulatory context.
Based on this definition of “discrimination”, the AESO states that the OATT “discriminates”
against PTP customers by virtue of the Network Customer having receipt and delivery point
flexibility, access to Network Economy service, and the alleged “free option”.
20. Although the AESO appears to consider that the issues that it has raised are
analogous to discrimination based on sex or race and asks this Commission to apply
principles applicable in that context, it is more appropriate for the Commission to apply
concepts developed in the regulatory context. The purpose of human rights legislation is to
protect and advance the basic human rights of individuals in the face of conflicting
commercial and other interests; it requires the commercial interests to give way to achieve
equality of outcomes. It is unhelpful to use legal authorities such as the one cited by the
AESO in achieving a balance in the rate design context.
-
- 9 -
21. “Discrimination” in the regulatory context means that customers within a class
are treated differently. In Chastain et al v. B.C. Hydro & Power Authority, [1973] 2 W.W.R.
481 at 491 (B.C. S.C.) McIntyre J. (as he then was) held:
The obligation of a public utility or other body having a practical monopoly on the supply of a particular commodity or service of fundamental importance to the public has long been clear. It is to supply its product to all who seek it for a reasonable price and without unreasonable discrimination between those who are similarly situated or who fall into one class of consumers.
It is thus acceptable, for example, for a load serving utility to treat a class of residential
customers differently (i.e. accord different rights and charge different rates) from a class of
industrial customers. It is also acceptable to offer different services (such as NITS and PTP),
that have different attributes, and different rate obligations. The proposed OATT, if approved
and implemented, provides all transmission customers with open access to transmission
service on a fair and equitable basis. Any transmission customer can purchase NITS service
or PTP service (short-term or long-term), provided the customer is willing to pay the tariff
price for the service. The differences in the entitlements and priorities associated with NITS
and PTP service flow directly from the fact that the services and rates paid are fundamentally
different.
22. It is a question of fact whether “discrimination” (as that term is used in the
regulatory context) exists. In these proceedings, no transmission customer or potential
transmission customer, from Alberta or otherwise, provided any evidence that they have
been, or stand to be, treated any differently from other PTP customers who purchased the
same service (e.g. firm or non-firm). The AESO’s evidence simply establishes that (a) non-
firm service is interruptible, affirming that a lower value service can be “bumped” by a
higher value service, and that (b) transmission may be of greater value to some customers
than others. As noted in BCTC’s main argument at paragraphs 67 and 73 (and as noted by
FERC at the passage quoted in para. 67), the remedy to the AESO’s concern that non-firm
transactions to and from Alberta are interrupted by higher priority transactions in BC is for
those customers to purchase firm transmission capacity in BC that would not be subject to
interruption.
-
- 10 -
23. While the AESO has couched its position in terms of the proposed OATT
producing “discriminatory” results, its ultimate objective appears to be “levelling the playing
field”, from an overall trade perspective with BC Hydro. TCE is less guarded; at p. 4, ll. 23-
27 TCE complains that the proposed OATT does not address the competitive advantage of
the Network Customer, and at p. 13 ll. 17-18 TCE refers expressly to the need for “levelling
the playing field between the Network Customer and non-Network PTP customers.” The
position of the AESO and TCE appears to be, in essence, that because BC Hydro enjoys a
number of market advantages over Alberta participants (notably, by virtue of its generation
resources and its geographic position between Alberta and the United States) that permit BC
Hydro to afford higher priority firm service, the Commission should seek to impose equality
of outcomes through amendments to the proposed OATT. But, as the AESO itself observed
(at p.6 of its submissions), it is inappropriate for the tariff to be designed with an eye to
benefiting particular transmission customers: “Mr. Mansour had it right the first time around
where he stated that principles of open and non-discriminatory transmission access require
the service provider to be indifferent to a customer’s economic self-interests, geographic
location and destination.” The Commission should be extremely wary of using a
transmission tariff to achieve equality of outcomes among customers.
Ex. B2-24, MSA Report, pp. 2 and 17-18
Evidence of Mr. Millar, Tr. 10 p. 1452, ll. 9-16
Evidence of Mr. Way, Tr. 10 p. 1466, l.3 – p. 1467 l. 25
24. Section II of the AESO’s argument deals with the “Roles and Responsibilities
of BCTC” (pp. 3-6) as an independent transmission provider. The AESO appears to suggest
(see, for example, the comments at pp. 4, 5 and 31) that the design of the proposed OATT
demonstrates a desire on the part of BCTC to favour BC Hydro over other customers by
virtue of BC Hydro’s historic position as monopoly service provider. BCTC’s efforts to
consult stakeholders and to strike an appropriate balance among the interests of all its
customers are well documented and are summarized at paragraphs 15-19 of BCTC’s primary
submissions. The provisions of the proposed OATT reflect a balance, within the policy
framework of a FERC Order No. 888 and the Energy Plan, among the interests of all of its
customers.
-
- 11 -
25. The AESO submits (at p. 31) that BCTC's view is that “use of the
transmission system is an exclusive right of BC Hydro.” This proposition is patently absurd,
given the balanced nature of BCTC’s proposals on this Application. In support of this
contention, AESO references Mr. Mansour’s evidence that a 20% restriction would be akin
to “denying native load 20 percent of their rights.” The AESO has misrepresented
Mr. Mansour’s evidence. Mr. Mansour’s point was that if the Network Customer cannot use
20% of the capacity, then effectively 20% of their rights to use that capacity is taken away.
Mr. Mansour did not say that the Network Customer had an exclusive right to use that
capacity, and such an implication is not supported by any evidence. The AESO also refers
(at p. 27) to this portion of Mr. Mansour’s evidence to suggest that BCTC’s position with
respect to Network Economy is based on some concept of “acquired rights”. This, again,
misrepresents Mr. Mansour’s evidence and BCTC’s position. BCTC’s position is that
Network Economy is available to Network Customers because they pay for that right by
accepting the burden of system costs, not by virtue of “acquired rights”. BCTC’s view is that
the transmission system may be used by any transmission customer subject to the terms and
conditions of its OATT.
Evidence of Mr. Mansour, Tr. 6 p. 593-594
26. The AESO, after having argued (at p. 2) “The problem is that BCTC has not
properly considered the results of adopting the proposed tariff…[emphasis by the AESO]”
(and, presumably, not adopting the AESO’s proposals), immediately thereafter proceeds to
criticize BCTC for doing just that and considering the implications of the AESO’s proposals
on domestic customers. It is appropriate to consider aggregate results as among classes of
customers, as BCTC has done. It is inappropriate to structure the tariff with the objective of
“levelling the playing field” between groups of market participants with different competitive
attributes, as the AESO and TCE advocate.
27. At page 8 of its argument, the AESO questions why BCTC did not consider
that the AESO’s proposals met BCTC’s internal threshold for change, suggesting that BCTC
would only make changes where it benefited BC Hydro. There is no merit to this suggestion.
Of the examples cited by the AESO, one proposal was to price the IOS services that BCTC
receives from BC Hydro and is irrelevant to this debate. With respect to the other examples,
-
- 12 -
BCTC proposed long-term shaped service and short-term discounting because they are
designed to increase utilization of the system and to increase revenues to the benefit of all
customers. BCTC made such proposals based on its consideration on the interests of all of
its stakeholders, and not BC Hydro’s alone. BCTC notes that some of these proposals, such
as the Shaped Service, the BC Clean Rate, and some aspects of BCTC’s proposed
discounting policy, are opposed by BC Hydro.
28. The AESO’s proposal was not accepted because it is of a different character
and nature, which is to seek a change to the tariff to allocate firm capacity to a class of
customers without allocating to those customers the financial responsibility for that capacity.
On the AESO’s evidence, those customers are unable or unwilling to pay the embedded cost
of that capacity as reflected by the firm PTP rate, and the result would be a subsidization of
those customers by the domestic customers whose transmission rights (but not cost
responsibility) had been reduced. As a general observation, the AESO’s proposal cannot be
given credence without rethinking the entire rate design and the charges payable by Network
and PTP customers respectively. The AESO’s proposal might warrant consideration if the
proposed reallocation of existing transmission capacity was founded on the premise that the
marketers whose interests the AESO advanced in these proceedings were also required to
accept the embedded cost responsibility for that capacity.
Exhibit C9-5, p. 13 (approximately 80% of the time, there is no trade potential between Alberta and Mid C at firm transmission rates)
3.1 Receipt and Delivery Point Flexibility (“Hubbing” and “Parking”)
29. BCTC’s position is that receipt and delivery point flexibility (“parking” and
“hubbing”) provided to the Network Customer does not result in, or contribute to,
discriminatory outcomes.
30. The AESO states (at p. 9) that “the need for the Network Customer to have
receipt and delivery point flexibility is not at issue. What is important is recognition of the
effect that this preference provides to the Network Customer in its ability to compete with
PTP-only customers.” The key assumption underlying this argument is that receipt and
delivery point flexibility represents an undue “preference” in favour of the Network
-
- 13 -
Customer. BCTC’s witnesses testified that receipt and delivery point flexibility is at the very
heart of Network Service, and is a reasonable benefit given the nature of NITS service and
the fact that NITS customers “backstop” the entire Transmission Revenue Requirement.
Different services may have different attributes without being discriminatory or unduly
preferential.
Evidence of Ms. Letourneau, Tr. 6 p. 530 l. 21 - p. 531 l. 3
31. Both the AESO and TCE have sought to dismiss this rationale out of hand by
reference to the SMD NOPR. The AESO states (at p. 10): “This position is unquestionably
at odds with FERC, given FERC’s approach to give the same flexibilities to all transmission
customers under a single transmission service as a right and not a compensatory benefit.”
TCE similarly states (at p. 3, ll. 22-25) that “The effects of Parking and Hubbing, which are
permitted under the FERC 888 Tariff, have been recognized as a potential problem by both
the FERC and by BCTC, however to date there have been no proposals of mitigation
measures put forward by either the FERC or BCTC.” The SMD NOPR was, as the name
suggests, a Notice of Proposed Rulemaking that has never been taken to Final Rule form by
FERC.
32. Ms. Letourneau testified that, as PTP transmission is primarily bought for
inter-control area transactions in the British Columbia context, “the issues that FERC raised
[in the SMD NOPR] are probably not particularly significant.” The distinction drawn by
Ms. Letourneau between inter-control area transactions and intra-control area transactions is
important.
• Intra-control area: Within the control area, a NITS customer can modify energy flows from any designated resources to any designated loads without changing transmission reservations (because NITS provides service from multiple points of receipt (POR) to multiple points of delivery (POD)). Conversely, if a PTP customer’s energy transactions no longer matched the POR and POD of its reserved capacity it would be faced with redirecting its firm service to a new POR and POD or be unable to complete the transaction. This difference arises where, if, and when PTP energy transactions compete with NITS energy transactions within the province.
• Inter-control area: Between control areas, both NITS and PTP service require a transmission reservation that limits flow between one POR and one POD. Energy on either a NITS or PTP inter-control area transmission reservation would be treated and
-
- 14 -
handled identically with the same degree of POR/POD flexibility. In other words, either would face the need to redirect the reservation to new POR/POD, if the energy transactions changed. In fact, use of NITS, due to the OATT section 30.7 requirement, would face an added limitation or obstacle.
The basis for the conclusion in the SMD NOPR that there are “…inherent differences in
flexibility between the two types of tariff services, including the one described above
[POR/POD flexibility and parking and hubbing], are resulting in undue preferences …” was
that a customer using NITS could specify its loads as a single delivery point, or as multiple
delivery points and then alter this specification when and if it find a buyer, whereas a PTP
customers must specify a buyer before making reservations. However, in BC, and generally
in the industry, this latter condition is not a requirement. While there is certainly a risk in
doing so, PTP customers can reserve transmission capacity in advance of finding or
finalizing energy trades. The point is that it isn’t the differences in the terms of the services
or POR/POD flexibility in and of itself that creates differences in the ability to park or hub.
It is having the ability to manage generating resources and load within the control area that
provides this improved ability to park and hub. Without the latter, the former is of little
value.
Evidence of Ms. Letourneau, Tr. 6 p. 531 ll. 12 - p. 536 l. 26; p. 542 l. 10 - p. 545 l. 3
FERC Docket No. RM01-12-000 - Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market – Appendix C: Examples of Flaws in the Current Regulatory Environment; Lack of Common Set of Rules Governing Transmission, Section 2 – Receipt and Delivery Point Flexibility.
33. Ms. Letourneau also gave evidence that the problems complained of by the
AESO (and now the TCE, at p. 4 of its submissions) are a reliability-based energy issue
driven by NERC and WECC standards and are not caused by receipt and delivery point
flexibility. Hubbing and parking can occur in any control area regardless of the terms of the
transmission tariff. TCE itself notes (at p. 5 ll. 16-17), hubbing and parking “is not unique to
B.C.” This point is addressed in greater detail at paragraph 62 of BCTC’s primary
submissions.
-
- 15 -
Evidence of Ms. Letourneau, Tr. 6 p. 531 l. 19 - p. 533 l. 4; p. 534 ll. 3-5; Tr. 6 p. 542 l. 10 - p. 545 l. 3; p. 554 l. 10 - p. 555 l. 6
Evidence of Mr. Mansour, Tr. 6 p. 557 l. 18 - p. 558 l. 23
Ex. B1-1, Application, Appendix A, Section 30.7
34. FERC has never reduced the flexibility of network service, and the SMD
NOPR only proposed to make that flexibility available to all. The AESO has not sought
tariff amendments to provide receipt and delivery point flexibility to all customers, and the
solution that it has advanced bears little or no relationship to the problem that it identifies.
35. At p. 13, of its argument, the AESO states: “BCTC contends that Network
Customers are subjected to more constraints than point-to-point customers when transacting
on the interties due to their requirement to demonstrate that they have a contract before
obtaining service. BCTC’s interpretation of their tariff in this instance is quest ionable.
Section 30.7 limits the use of Network Service; it does not limit the use of point-to-point
service.” [Emphasis added.] BCTC clarifies that the term “Network Customers” was used by
BCTC, at pages 23-24 of its main submissions, as shorthand for a customer using Network
Service. The point made was that Network Service is subject to the constraints outlined.
Ms. Letourneau’s evidence cited in support of that argument refers to Network Service, not
to the Network Customer.
Evidence of Ms. Letourneau, Tr. 6 p. 554 l. 10 - p. 555 l. 20
36. The AESO concludes (at p. 14) by stating, “The AESO instead urges the
Commission to weigh the presences of Receipt and Delivery Point Flexibility and its undue
preference as a factor requiring counter-balancing in the overall mitigation of discrimination
and undue preferences found in the tariff.” There is no “undue preference” and no mitigation
is required. A customer that takes a particular services gets the attributes of the service, for
which it has paid.
3.2 Network Economy
37. BCTC’s position remains that Network Economy is an important attribute of
Network Service under the FERC Order No. 888 Pro Forma tariff that promotes efficient use
-
- 16 -
of a large number of integrated resources. In FERC Order No. 888, FERC provided
flexibility to both Network and PTP customers. Network customers were entitled to arrange
for economy purchases from non-designated resources. PTP customers were entitled to
schedule on a non-firm basis from secondary receipt and to secondary delivery points.
38. The AESO (at p. 21) quotes Mr. Way in support of its position that Network
Economy was set up for “some small municipal network customers that really didn’t have
big trading operations, and really needed some way to shore up their supplies when they ran
into some difficulties”, and Network Economy is was not intended to assist a large customer
like BC Hydro. Mr. Way, with respect, was in no way qualified to say why FERC
established Network Economy service; the FERC decisions speak for themselves, and they
do not support Mr. Way’s analysis. FERC has placed no limits on the size of an entity that
can take any service under its pro form tariff, including Network Service, which FERC
required public utilities to offer. Making Network Service available to all entities, in addition
to transmission providers themselves, was required to avoid discrimination. Network Service
was based on the way in which transmission owners, which were usually large vertically-
integrated utilities, used the system in order to optimize their resources to meet their
customers needs. FERC contemplated that transmission providers and other large load
serving entities would take Network Service because that service is ideally suited for large
load serving entities.
Promoting Wholesale Competition, FERC Order No. 888, 75 FERC ¶ 61,080 at 152-161(1996) (Final Rule)
39. Apart from Mr. Way’s speculation on the origins of Network Economy, the
crux of the AESO’s argument on why Network Economy should be discontinued is (at
p. 26): “Since the issuance of the SMD NOPR, the FERC has consistently stated that the 888
tariff design results in undue discrimination, meaning that the rights afforded under this tariff
design have been recognized to be imbalanced and misaligned.” No authority is cited for that
bald statement.
40. The AESO has substantially overstated the implications and effect of the
SMD NOPR. The SMD NOPR did not conclude that Network Economy was discriminatory.
-
- 17 -
Nor was the SMD NOPR ultimately endorsed by FERC in a final rule. If what the AESO
says was true – i.e. that FERC had held at any time that the Order No. 888 Pro Forma tariff
was “discriminatory” or “imbalanced and misaligned” - the effect would be to make the
tariffs of many transmission providers in the United States illegal. Since the SMD NOPR
was released, FERC has approved amendments to Order No. 888 Pro Forma-style tariffs that
provided for Network Economy service. The regulatory reality is that no tariff in North
America has been rejected for the reason that it includes provisions that permit the use of
Network Service for the purpose of network economy transactions. BCTC notes that open
access transmission tariffs based on the FERC Order No.888 Pro Forma tariff have also been
approved for use by regulators in several Canadian provinces, including Saskatchewan,
Quebec, New Brunswick, and Manitoba.
Exhibit B1-1, Appendix E, “BCTC Tariff Design Background Document”, p. 6
See, for example: Sierra Pacific Power Company, 108 FERC ¶ 61,005 (2004) (Order Conditionally Accepting Tariff Revisions); and
Midwest Independent Transmission System Operator, Inc, 103 FERC ¶ 61,212 (2003) (Order Conditionally Accepting Compliance Filing and Ordering Further Compliance Filing)
41. The AESO (at p.1) refers to the evidence with respect to BC Hydro’s use of
Network Economy service and suggests that “Without modifications to the Application, there
is nothing on the face of the record that suggests unjust discrimination and undue preferences
will cease.” BCTC’s witnesses cautioned against concluding on the basis of usage statistics
that Network Economy has been abused. BCTC has proposed enforcement measures (see
para. 75-82 of BCTC’s primary submissions) that, properly implemented by the Commission,
would permit proper evaluation of the concerns raised. BCTC has suggested that its
proposed reporting regime should be re-evaluated after a reasonable period of time, and
modified if the parties identify persistent and troubling use of Section 28.4 of the OATT by a
Network Customer.
Evidence of Mr. Lusztig, Tr. 8 p. 1072 l. 13 – p. 1073 l. 9
-
- 18 -
42. The essence of TCE’s complaint with respect to Network Economy is
similarly that (at p. 7 ll. 3, 18) Network Economy is capable of “abuse” or “improper use” by
“bump[ing]” customers on the BC-Alberta intertie, and (at p. 8 l. 6) that to have any certainty
with respect to transmission, a customer must contract for firm service. Monitoring and
enforcement can address abuse, and it is unnecessary to eliminate the priority given to
Network Economy over non-firm transactions. The priority of Network Economy was
carefully considered by FERC in Order No. 888 and Order No. 888-A and represents an
important element of the balance contained in the tariff. FERC’s logic supporting the
availability of Network Economy service and its priority over non-firm service remains
compelling:
[N]etwork economy purchases should have a reservation priority over non-firm point-point customers and secondary point to point uses of the transmission system. Network transmission customers are obliged to pay all of the costs of the transmission system without regard to the resources from which energy is scheduled. Therefore, it is appropriate that the transmission associated with a network customer’s economy purchases (i.e. transmission that is used to substitute one resource for another on an as-available basis) enjoys a higher priority than non-firm point-to-point service.
Promoting Wholesale Competition, FERC Order No. 888, 75 FERC ¶ 61,080 at 332 (1996) (Final Rule)
43. TCE concedes at p. 4, ll. 27-28, that “The non-firm PTP customer can of
course avoid some of this risk by committing to firm PTP transmission service”, but neither
TCE nor the AESO suggest that Alberta participants should have to purchase firm service in
BC for the simple reason that it is more expensive, and there remains a risk that the
Opportunity Service available on the Alberta side of the intertie will be interrupted. Firm
service is more expensive than non-firm service, precisely because the former has greater
reliability than the latter; it has nothing to do with discrimination or unequal access.
44. BCTC’s opposition to the AESO’s position is emphatically not, as the AESO
suggests, a mere “euphemism for the view that existing discrimination is acceptable and that
short term trade with Alberta and Mid Columbia is the exclusive domain of BC Hydro.”
Rather, BCTC’s position is that there is no discrimination. Non-firm service is cheaper
because it is interruptible. If Alberta participants want the benefits of firm service, they
-
- 19 -
should have to pay for it and make a fair contribution to system costs. The passages from
FERC Order No. 888 quoted and cited by BCTC (above, and at paras. 66-67 of BCTC’s
primary submission) demonstrate the importance of Network Economy service and the
principle that a customer should pay more for a higher value service.
45. There is a degree of irony in the statement made by TCE (at p. 8) that it is not
a solution to suggest that Alberta customers contract for firm PTP service because “Each of
these services has distinct characteristics and fulfil different roles in the marketplace.
Although non-firm service has lower priority than firm service, this should not mean that
transactions cannot be booked using a non-firm tariff.” The same could be said for Network
Economy. It is an important attribute of Network Service, with distinct characteristics, and
fulfils a different role in the marketplace. Although Network Economy has higher priority
than non-firm service, this should not mean that transactions cannot be booked using
Network Economy. The answer to potential abuse lies in reporting and enforcement, not
eliminating an attribute of transmission service that is integral to the use of the system by
Network Customers.
3.3 “Free Option”
46. BCTC’s position remains that the Network Customer does not enjoy a “free
option” with respect to PTP service, as there are opportunity costs incurred by the Network
Customer if it prevents trade by a PTP customer. Unlike the “free option” espoused by the
AESO, the effect of failing to use transmission service that is reserved for its use, is that the
Network Customer pays for the embedded costs associated with that transmission.
47. There is no “free option” as described by the AESO. To illustrate this point,
consider the following cases:
• One network customer who is also the only PTP customer. As the network customer pays for the entire Transmission Revenue Requirement, it should be able to use the grid without restriction. There is nothing free here, since the network customer pays for the entire bill.
• One network customer who is one of the many PTP customers. Two possibilities arise:
-
- 20 -
• The network customer's PTP reservation displaces another PTP customer's reservation. The network customer's transmission bill goes up due to the lost revenue. Hence, there is no free option here.
• The network customer's PTP reservation does not displace another PTP customer's reservation. As the other PTP customer's reservation is unaffected, the line in question must have more than enough capacity to meet all reservations. Now the question is whether the network customer has a free option. The answer is "no" because the network customer pays for the uncongested line via its load-ratio share revenue obligation; and this line should not be freely available to and used by PTP customers who wish to use it on an as needed basis.
48. The AESO asserts (at p. 15) “BC Hydro and BCTC have confirmed the option
to acquire point-to-point service by the Network Customer results in no net cost to the
Network Customer. The evidence on the record is very clear: the “Free Option” is free
[emphasis added by the AESO].” In fact, the evidence of Messrs. Lusztig and Mansour, as
well as Mr. MacDougall, was that there is an opportunity cost associated with a Network
Customer’s purchase of PTP service. The AESO itself recognizes that the “option” is not
free when it portrays (at p.16) the Network Customer’s choice between “(a) the benefit of
having the point-to-point capacity; or (b) the benefit of having a third party contribution to
NITS.” The fact that choosing (a) requires a foregoing of the benefit in (b) demonstrates the
real economic cost to the Network Customer of over-consuming PTP service. TCE appears
to concede at p. 9 l. 10 that the so-called “free option” is not actually free because the
Network Customer incurs an opportunity cost in terms of foregone PTP revenue.
Evidence of Mr. Lusztig, Tr. 6 p. 511 l. 10 – p. 515 l. 21
49. BCTC notes that the suggestion made by the AESO in the second last
sentence of the second paragraph on p. 16, to the effect that BC Hydro controls market prices
in US and Alberta markets is unsupported by any evidence in this proceeding.
50. The AESO also argues that the “free option” must exist because, on its
analysis, BC Hydro pays more for transmission than other customers do. This is not
surprising, given the location of BC Hydro’s resources and the nature of those resources. It
would be quite surprising if the average price paid by the owner of a predominantly
hydroelectric system was not lower than that paid by more distant thermal generators, based
-
- 21 -
on operating cost differences alone. Indeed, this point was conceded by the AESO’s witness.
The evidence is not sufficient, in the AESO’s analysis or otherwise, to establish that BC
Hydro paid more for transmission than the underlying transactions would justify. Neither the
AESO, nor BCTC have any basis upon which to determine that question, despite the
willingness of AESO witnesses to speculate in this regard. The AESO did not pose the
question to BC Hydro.
Evidence of Mr. Millar, Tr. 10, p. 1452, ll. 9-16
Evidence of Mr. Way, Tr. 10, p. 1464, l.13 – p. 1467 l. 25
3.4 Intertie Limits, Holding Limits (the AESO’s “Proposed Solution”)
51. The AESO overstates the problem that it seeks to address, and proposes a
solution that is both inefficient and unfair. Receipt and delivery point flexibility, access to
network resources, and the flexibility to supplement network resources with economy energy
purchases to keep the costs of load service low, are integral attributes of a service that is
provided to load serving entities that need to serve multiple loads from multiple resources.
None of these attributes constitutes discrimination vis a vis the parties that the AESO
represents or an undue preference. As previously indicated, NITS is different from PTP
service, and these attributes flow from the fact that Network Customers assume a greater risk
than PTP customers by virtue of backstopping the Transmission Revenue Requirement.
52. The AESO’s proposed capacity restrictions are inefficient because they will
result in the completion of lower margin transactions at the expense of potentially higher
value transactions.
53. The AESO’s proposed capacity restrictions are not only inefficient, they are
also unfair. The embedded cost associated with the transmission set aside on the intertie will
be borne by the customers who pay BC Hydro’s retail rates. BC Hydro customers (such as
those represented in these proceedings by the BCOAPO et al and other retail customers) will
pay most of the cost of the transmission that is used by the Alberta marketers, and will pay
for all of the transmission that is left unused by those marketers when trading conditions are
not favourable to them.
-
- 22 -
54. Although the AESO states (at p. 34) “BCTC has also incorrectly characterized
the proposed restriction as providing a “Free Option” for customers on a particular path to
use at non-firm rates”, this is precisely the manner in which it was described by Mr Way. The
option is “free” because the Alberta marketers would pay nothing for the option to reserve
transmission (if they do not use it, BC Hydro’s domestic customers pay the cost). It is
reasonable to assume that it will be sold at non-firm rates, because the AESO has taken great
pain to explain that firm rates are too expensive for Alberta market participants, and that
trade opportunities at those rates exist in a limited number of hours. A network customer
receives rights to reserve and use the transmission network by “backstopping” the
Transmission Revenue Requirement. Setting aside 50% of the intertie for use by PTP
customers is the same as restricting the network customers to 50% of the intertie capacity,
but requiring them to pay for the whole cost. Implementing the AESO’s proposed change
without requiring PTP customers to have a similar “backstop” payment obligation will cause
a significant shift in transmission rights and cost responsibility among transmission users.
Evidence of Mr. Way, Tr. 10, p. 1500 l. 12 - p. 1502 l. 7
55. The AESO (at p. 37) cites the decision of the National Energy Board ("NEB")
in Interprovincial Pipeline Inc. (December 1997), OH-2-97 ("IPL"), in support of its
proposal to eliminate Network Economy and restrict BC Hydro's intertie capacity holdings.
Contrary to the AESO's claims, the situation in IPL is not at all like the situation that is
present in this Application. In IPL, various refiners had contracted for 100% of the Line 9
capacity. The consequence of this was that other shippers had no access to the system and
the NEB decided that IPL must grant access to those shippers to fulfill its common carrier
obligations. In the present situation, BC Hydro's use of the system does not limit the ability
of others to access the system. Others are free to purchase various transmission services,
including ST firm and non-firm, LTF PTP and NITS, and are free to require BCTC to build
to provide any necessary firm capacity required. The fact that non-firm service may be
bumped by higher priority services under the existing tariff and the proposed OATT is not
analogous to the situation in IPL, where shippers had no ability to gain access to Line 9. The
issue for the AESO is not access, but price.
-
- 23 -
56. The fundamental basis for the AESO’s concern appears to be that non-firm
transactions to and from Alberta are interrupted by higher priority firm PTP and Network
Economy transactions in BC. The remedy to both concerns, as stated previously, is for those
customers to purchase firm transmission capacity in BC that would not be subject to
interruption, and for increased review of network economy transactions to ensure that the
service is used for its intended purpose. The AESO’s sole justification for Alberta marketers
not buying firm service appears to be that it is too expensive, especially considering the
limited number of hours that trade opportunities exist between Alberta and Mid C, and that
the risk of interruption of Opportunity Service on the Alberta side of the intertie remains.
This is not a question of open access; access to transmission service is always available for
those who are willing to pay. The prospect that, for Alberta market participants, the cost of
firm transmission is prohibitive when compared to their margins from trade and risk of
interruption in Alberta is a function of their trade economics, rather than a function of
BCTC's tariff.
Exhibit C9-5, Table 1
3.5 Tariff Enforcement
57. There are currently adequate mechanisms to have tariff-related concerns heard
and addressed; however, as noted in BCTC’s main submissions, enforcement of customer
behaviour could be improved by ongoing reporting to the Commission by BCTC and BC
Hydro. The Commission is the appropriate body to ensure that tariff provisions are suitable
for their purpose and are correctly applied and enforced.
58. TCE states (at p. 12 ll. 26-28) that change to the proposed tariff, rather than
enforcement measures, are necessary because “BCTC has demonstrated that they have been
unable to control [abuses]. In fact, BCTC claims to have been unaware that such bad
behaviour was occurring.” The first problem with this argument is that it presumes that
abuses have in fact occurred. While BCTC has expressed concerns about the inconsistencies
between its interpretation of the tariff, and the transaction record of the Network Customer,
the question of whether tariff violations have occurred was not resolved in this proceeding.
-
- 24 -
59. The suggestion that BCTC has been somehow derelict in performing its
enforcement responsibilities (see, for instance, TCE’s argument at p. 13 ll. 5-9) is factually
wrong. BCTC has responded to every complaint lodged about the practices of the Network
Customer on the Alberta/BC path. In every case prior to this proceeding, the investigation
revealed the Network Customer had acted appropriately. In order to improve tariff
enforcement, BCTC is proposing the enhanced reporting obligations for both BCTC and the
Network Customer as set out in paragraphs 78-82 of BCTC’s primary submissions.
60. The AESO states (at p. 6) that the existence of the 1999 Network Economy
Alberta Export Rule (“NEAER”) was “late breaking news”, “mysteriously” withheld by
BCTC in these proceedings. The existence of the NEAER is hardly a secret; it has always
appeared on BCTC’s website (and previously on BC Hydro’s website), and is accessible to
all customers. Mr. Mansour testified that the NEAER had been explained at the Alberta
consultations:
MR. NETTLETON: All right. Why did you not take that opportunity [rebuttal evidence] to explain your position with respect to the elimination of network economy?
MR. MANSOUR: Well, I have taken just about every opportunity to explain the issue of network economy, including the consultation sessions we held in Calgary for the benefit of the Alberta participants. They raised the issue, we explained it to them several times, including the consultations associated with this proceeding – with these proceedings. We explained why it has to be maintained as a benefit for network customers, we explained why that these are the rights of native load that we cannot deny, and then FERC did not suggest that either. And what I said is, our role is to make sure that it is used appropriately, and I explained to the participants in Alberta what we have in place to make sure that that is the case. [Emphasis added.]
The NEAER is an interpretation of sections 28.4 and 28.6 of the tariff. Those sections of the
tariff established the restrictions on Network Economy use. BCTC intends to review the
NEAER as part of the process described at paragraph 78 of its main submissions.
Evidence of Mr. Mansour, Tr. 6 p. 560 ll. 6-23
61. The AESO states (at p. 7), with respect to the NEAER, that “Even BCTC’s
own interpretation of the compliance within the 1999 Restriction has changed since the
-
- 25 -
Commission requested weekly reporting.” BCTC has not changed its interpretation of
compliance; rather, the original analysis performed by BCTC staff did not properly reflect
that interpretation. In correcting the analysis, the results of the assessment of frequency and
magnitude of non-compliance were considerably higher.
62. The AESO states (pp. 7, 29) that ex post facto enforcement is inadequate and
that no solution other than removal of Network Economy is possible. BCTC submits that it
is simply untenable to suggest the removal of a fundamental element of Network Service
based on the potential for abuse. To use an analogy, one does not stop speeding by
eliminating driving; the answer is to increase enforcement efforts to catch those individuals
who break the rules.
4.0 LONG-TERM POINT-TO-POINT SERVICE
63. BCTC’s position on the issues identified in item 4.0 on the Hearing Issues List
(Exhibit A-24) are addressed elsewhere in BCTC’s main submissions and reply submissions.
5.0 LONG-TERM SHAPED SERVICE
64. The issues raised by Intervenors in respect of the proposed Shaped Service
have largely been addressed at paragraphs 89-96 of BCTC’s main submissions. In this Part
of the reply submissions, BCTC addresses discrete points raised in the submissions of BC
Hydro and CBTE.
65. BC Hydro argues (at para. 24) that approval of Shaped Service will increase
the risk of over-committing the system because the load shape may be different than forecast.
BCTC explained at paragraph 91 of its main submissions that the process for calculating
ATC is inherently conservative, and its staff has considerable expertise. BCTC also
referenced, at paragraph 91, Mr. Garnett’s evidence that BCTC would not release capacity
for Shaped Service based on a discrete forecast peak, but rather on an assessment that the
peak will fall within a range of months where it has occurred in the past. The evidence is that
there is minimal risk of BC Hydro’s load shape changing. Appendix A.3 of BCTC’s Loss
Calculation report, attached to Cloudworks IR 3.2.0, shows that BC Hydro’s load shape has
not changed in the past several years, nor is it forecast to do so. Given both the small size of
-
- 26 -
the IPP market in British Columbia and the gradual changes in system load shape over time,
the risk of “over-committing” the system in this regard is more hypothetical than real.
Ex. B1-11, Cloudworks IR 3.2.0
Evidence of Mr. Garnett, Tr. 8 p. 893 l. 12-p. 894 l.16
66. BCTC explained at paragraphs 95 and 96 of its main submission why
customer- directed Shaped Service is only viable if there is a mechanism in place to prevent
transmission capacity from being “cherry picked”, leaving behind unsold capacity with very
little value. The CBTE has advanced (at pp. 7-12) an alternative proposal for customer
shaped service, and asserts that “its proposal is sufficiently certain to be implemented at this
time.” BCTC still believes that the CBTE’s proposal contains insufficient information to be
capable of implementation. In particular, uncertainties remain with respect to (1) pricing, (2)
planning, (3) rollover rights, and (4) cost allocation. BCTC’s views with respect to the
certainty required to implement the CBTE’s proposal are informed by the complexity of
taking its own Shaped Service proposal from the conceptual to the implementation phase.
6.0 SHORT-TERM RATE DESIGN
67. BCTC’s submissions in respect of short-term point-to-point service and the
discounting formula are set out in paragraphs 97-120 of BCTC’s primary submissions.
7.0 NETWORK UPGRADE POLICY
68. BCTC’s position on the issues raised by Intervenors in respect of BCTC’s
proposed investment policy for Network Upgrades that are triggered by requests for
transmission service is set out at paragraphs 121-138 of BCTC’s main submissions. Below,
BCTC addresses discrete arguments made by the CPC, IPPBC and Cloudworks. It remains
BCTC’s view that its proposed investment policy balances the need of new transmission
customers seeking access to the system against the need to minimize the risk exposure of
existing customers due to stranded assets.
-
- 27 -
7.3 “Free Riding” on Network Upgrades, “Pioneer Rights,” and “System Benefits”
69. CPC states (at p. 10) that BCTC “incorrectly presumes that the upgrader will
always be able to use the entire credit that the upgrade provides – and that is not likely to be
the case.” BCTC believes that where the upgrade is economic, the “upgrader” will be able to
use the entire credit. BCTC argues that not all upgrades will be economic due to the
“lumpiness” of transmission upgrades, the availability of other customers to utilize excess
transmission capacity, and the intermittent nature of certain generation resources. However,
it is not a reasonable solution to require other customers to bear the cost of upgrades, for
which they have no need, and from which they derive no benefit.
70. CPC also states (at p. 10) that “BCTC ignores the role of the Commission in
reviewing the prudency of its capital plans.” BCTC recognizes that it has an obligation to
make only prudent expenditures and that the Commission will enforce that obligation.
However, CPC confuses the role of the tariff and of capital plans. The tariff provides rules
pursuant to which a customer may require BCTC to build in order to provide that customer
with service. Those rules require cost recovery rules to ensure that the customer’s request
does not impose costs on others. If the investment policy is appropriate, and the customer
makes the demand under the tariff, the decision to build is, presumably, “prudent”.
71. CPC states (at p. 10) that “BCTC incorrectly argues that BC Hydro’s
ratepayers ultimately fund Network Upgrades. The only way that BC Hydro’s ratepayers
will pay for an upgrade is through the deemed equity mechanism.” This statement
misrepresents BC Hydro’s ratemaking structure under Special Direction No. HC2. All
customers ultimately pay for Network Upgrades because the costs are rolled in to the rates
under the tariff. The rates are rolled-in, not by virtue of a deemed equity mechanism, but by
operation of the transmission credits. In this way the transmission customer is refunded the
cost of the Network Upgrade over the term of service.
72. CPC also states (at p. 11) that “[i]t is critically important for BCTC to
coordinate capacity expansions on both sides of the border in order to enable IPP
participation in US wholesale markets.” BCTC accepts the importance of this role, and notes
that it participates in regional initiatives, such as Grid West, that are contemplated to improve
-
- 28 -
coordination in many of the areas that CPC suggests. However, BCTC does not consider it to
be appropriate for it to act as an agent for a customer to seek transmission access on another
system. BCTC questions how it could act for customers in the fashion CPC suggests in a
non-discriminatory manner.
73. The IPPBC states (at para. 118) that “[t]he current rate of 13.5% is not
appropriate.” BCTC stated in its response to CPP IR 2 5.6.2 that the 13.5% rate forms no
part of its application.
Ex. B1-6, CPP IR 2 5.6.2
7.5 Letter of Credit
74. Intervenors have expressed a desire to have BCTC allow for the Network
Upgrade portion of the initial investment to be supported by a Letter of Credit acceptable to
BCTC, or cash. BCTC agrees that concerns raised by Intervenors with respect to the rate
impacts associated with the treatment of up-front payments by Special Direction No. HC2
can be mitigated through the use of a letter of credit to secure the cost of the upgrade.
75. Cloudworks goes on to suggest (at p.1), however, that “three years after COD,
BC Clean projects see their Network Upgrade investment paid down in full. BCTC believes
that this proposal does not sufficiently protect the interests of other customers in avoiding the
cost of stranded transmission assets.
8.0 DEFERRAL CREDIT
76. BCTC’s submissions in respect of the Deferral Credit are set out in paragraphs
139-150 of BCTC’s primary submissions.
9.0 BC CLEAN RATE
77. BCTC’s main submissions (see paras. 151-166) anticipated most of the
arguments raised by Intervenors in respect of the proposed BC Clean Rate. BCTC remains
of the view that (i) the BC Clean Rate represents an opportunity to improve the utilization of
the transmission system by removing an impediment to use by relatively small intermittent
generators; (ii) the proposed eligibility requirement should not be changed from being based
-
- 29 -
on nameplate capacity to being based on output; and (iii) the 50MW eligibility requirement is
not unduly discriminatory by virtue of distinguishing between small and large clean
generation resources.
78. The two-part test set out in paragraph 82 of BC Hydro’s submissions is
derived from the Commission’s Bypass Rate Guidelines. BC Hydro advocates applying that
test on a customer-by-customer basis to determine eligibility for the proposed BC Clean
Rate. As described in BCTC’s response to BCUC 1 19.3, BCTC used the principles
underlying the two-part test in defining the class to which the BC Clean rate is applicable.
Determining eligibility on a customer-by-customer basis, as contemplated by BC Hydro,
would increase the potential for discrimination.
79. CPC argues (at p. 12) that the “[a]vailability of the BC Clean Rate based on
nameplate capacity rather than size of service request or explicit consideration of impact on
the system is unduly discriminatory.” It has proposed basing eligibility on the size of service
request or explicit consideration of impact on the customer. However, if basing the BC
Clean Rate on nameplate capacity is discriminatory, basing eligibility on the size of a
particular service request or explicit consideration of impact on the system is no less
discriminatory. CPC’s true objection to the eligibility criterion does not appear to be that it is
discriminatory, but that it does not include CPC’s facilities.
10.0 BUSINESS PRACTICES
80. BCTC dealt extensively with business practices at paragraphs 167-177 of its
main submissions.
81. In paragraph 39 of its submissions, BC Hydro suggests that Ms. Letourneau’s
rebuttal evidence with respect to BCTC’s Business Practices should be given little or no
weight, because the scope of business practices may vary across transmission providers, and
the survey participants were limited to the Western Interconnection. Ms. Letourneau’s
survey evidence was comprehensive. BC Hydro provided only anecdotal evidence to the
contrary.
Ex. B1-18, Rebuttal Evidence of Ms. Letourneau
-
- 30 -
82. BC Hydro supports its proposal for a formal business development practice
committee by asserting (at para. 40) that the stakeholders are not a group of weak parties.
While some of these transmission customers are substantial companies, their economic
involvement in the B.C. transmission system has historically been limited – certainly, much
lower than BC Hydro’s - and they have tended not to participate actively in past consultation.
This fact, together with BC Hydro’s position as expressed in paragraphs 8 and 9 of its
submissions, that if others do not show up, their interests are not worth protecting, informs
BCTC’s concerns about the prospects for developing a set of balanced business practices in a
committee environment.
Ex. B1-18, Rebuttal Evidence of Ms. Letourneau, p. 4-5
Evidence of Mr. Mansour, Tr. 5 p. 315 l. 18 - p. 316 l. 17
11.0 INVESTMENT POLICY, OPEN SEASON, AND INTERCONNECTIONS
83. There appears to be universal agreement among the Intervenors that the Open
Season is a good concept, and none has identified any insurmountable obstacles to its
effective implementation and operation. In this Part of the reply submissions, BCTC
addresses the issues raised by BC Hydro in respect of generator interconnection, specifically
Attachment XX.
11.2 Generator Interconnection Service
BCTC’s Role in Reviewing the CEAP Process
84. In Part 11 of BCTC’s primary submissions, BCTC explained that the
Interconnection process must balance the need to reasonably accommodate BC Hydro’s
Competitive Energy Acquisition Process (“CEAP”) against the need to maintain a
functioning queue and BCTC’s resource constraints. BCTC’s Modified CEAP Process
provides an integrated and comprehensive process to address BC Hydro’s CEAP objectives
in a fair and balanced manner.
85. BC Hydro, in its submissions (e.g., p. 68), continues to suggest incremental
changes to its Attachment XX proposal in an attempt to create a workable proposal. The ad
hoc “band-aid” measures are disjointed and continue to fall short of addressing all of the
-
- 31 -
problems with Attachment XX. BCTC’s Modified CEAP Process remains superior to the
Attachment XX process, particular in respect of (i) the impacts of initiating the process with
a Queue Cluster Window, (ii) integrating the interconnection and transmission queues, and
(iii) how the 180-day period during which the queues are paralysed can best be used. Each of
these three points is addressed in more detail below.
Initiating the Process with a Queue Cluster Window
86. BC Hydro argues (at para. 62) for the process to be initiated by a Queue
Cluster Window, and suggests non-CEAP bidders can participate in that Queue Cluster
Window. This is unworkable. Non-CEAP bidders in the Queue Cluster Window will have
no means of assessing which of the other projects in the Queue Cluster Window will be
proceeding until BC Hydro selects the successful CEAP portfolio. At the same time, the
interconnection and transmission costs associated with eligible CEAP portfolios may change
depending on which non-CEAP bidders in the Queue Cluster Window elect to proceed with
their projects. This creates a “chicken and egg” problem that materially undermines BC
Hydro’s ability to assess least-cost supply. When BC Hydro proceeds with selecting the
CEAP’s winning portfolio it will have to do so based on fluid interconnection costs, since
those costs may change depending on which non-CEAP projects carry forward. This same
problem will be faced by the non-CEAP bidders as their interconnection costs may change
depending on the projects in the winning CEAP portfolio. BC Hydro’s proposed Attachment
XX process fails to achieve the first and most fundamental of its own CEAP objectives –
providing BC Hydro with information to select least-cost supply.
Ex. B2-9, Direct Testimony of Mr. Reimann, pp. 5-6
Ex. B1-27, Revisions to OATT regarding CEAPs, p. 2, “Queue Position”
87. BCTC’s process avoids these complications by deeming equal queue positions
for all CEAP bidders, and only CEAP bidders. Interconnection requests from CEAP bidders
and from non-CEAP bidders can, therefore, be processed without reference to one another,
and without the inherent uncertainty that a Queue Cluster Window approach would create (as
discussed above).
-
- 32 -
Integrating the Interconnection and Transmission Queues
88. There are two queues – one for interconnection requests and one for
transmission service requests. The length of the queues will differ from one another, and will
vary from time to time. Without a process to manage the timing of service requests, the
general queue rules will not ensure that a CEAP-related NITS service request and the
Interconnection Requests of CEAP bidders will be studied simultaneously; rather, they will
each be studied based on their respective priorities in their respective queues.
89. BCTC’s Modified CEAP Process is the only proposal that establishes a
relationship between the timing of BC Hydro’s CEAP related NITS service request and the
Interconnection Requests of CEAP bidders. This allows a match between the timing of the
interconnection studies and the timing of the transmission studies so that the results of both
will be available at the same time. If BC Hydro wants to assess both transmission costs and
interconnection costs in determining least-cost supply, it is critical that it have the study
results available at the same time. Attachment XX does not provide for this. Here, again,
BC Hydro’s proposed Attachment XX process fails to achieve the first and most fundamental
of its own CEAP objectives.
Ex. B1-27, Revisions to OATT regarding CEAPs, p. 2
90. In order to achieve simultaneous studies with Attachment XX, the general
queue rules would have to be modified so as to provide either the CEAP bidders or BC
Hydro’s NITS service request priority over other requests in the interconnections queue or
transmission queue, respectively, to ensure study work could be undertaken at the same time.
As a result, either Attachment XX fails in achieving BC Hydro’s objectives, or BC Hydro is
proposing to change the general queue rules despite their claim to the contrary. Any change
to the general queue rules that would give BC Hydro or CEAP bidders priority over other
customers is clearly unfair and contrary to the principles of open access.
BC Hydro Submissions, April 5, 2005, at para. 60
-
- 33 -
Getting Value from Paralyzing the Queue for 180 Days
91. BCTC was encouraged when BC Hydro modified the open-ended process in
Attachment XX by capping the process timeline to the same 180 day period as initially
proposed by BCTC in its Modified CEAP Proposal. BC Hydro also appears to agree with
BCTC that study results should be available by the 120th day, and that the final 60 days of
that period should be (i) used by BC Hydro to evaluate bids, select a winning portfolio, and
execute a Service Agreement and (ii) used by the successful bidders to execute agreements
with BCTC for more detailed interconnection studies. The disagreement between BC Hydro
and BCTC is over what is to occur during the first 120 days.
Ex. B2-27, BC Hydro Undertaking
92. BC Hydro’s proposal is that BCTC should spend the first 60 days of the 180
day period undertaking an interconnection study for each bidder. These are the
interconnection studies referred to in section 3(b) of Attachment XX. These studies are to be
limited in scope to the facilities required between the interconnection customer’s project and
the Transmission System. The studies are not to include network upgrades. BC Hydro
continues to confuse the nature of these studies. BCTC has never undertaken studies of all
facilities required between the interconnection customer’s project and the Transmission
System. According to historical and existing business practices, the scope of the study is
limited to the facilities located within or adjacent to the Transmission System that are to be
owned or operated by BCTC. This generally includes a line beginning near the boundary of
the applicable substation or right-of-way, together with its interconnection to the
Transmission System, and any facilities required within the Transmission System. As noted
in paragraph 200 of BCTC’s main submissions, facilities between the generating plant and
the substation or right-of-way boundary are not studied by BCTC. It is the interconnecting
customer’s responsibility to study, design and construct those facilities.
Ex. B2-27, BC Hydro Undertaking
Evidence of Mr. Reimann, Tr. 9 p. 1314 ll. 9-18
93. The SGIP and SGIA adopt a new practice in distinguishing between network
upgrades and other facilities. That practice is based on a geographic test, so that all facilities
-
- 34 -
within the Transmission System are effectively network upgrades. On this basis, the studies
BC Hydro is proposing that BCTC undertake for the first 60 days of the period will generally
be limited in scope to the wire between the substation or right-of-way boundary and the bus
within the substation where that wire is connected to the Transmission System. This is
obviously an extremely small part of the facilities required to interconnect a new generator to
the Transmission System, and will provide little if any valuable information to bidders since
the costs of the wire will be minimal. Moreover, it is extremely unlikely that any clustering
effects would arise, as the effects of multiple projects generally do not impact on the wire
between the substation or right-of-way boundary and the bus. Instead, they most often
appear when considering any network upgrades that would be required within the
Transmission System – facilities that BC Hydro has indicated are not to be studied as part of
the Attachment XX Interconnection Studies. The first 60 days of studies can be used more
effectively.
Ex. B1-1, Application, p. 96; Ex. B1-4, BCUC IR 1 36.3, 1 36.4; Ex. B1-6, BCUC IR 2 28.1, JIESC IR 2 25.0a
Evidence of Mr. Reimann, Tr. 9 p. 1314, ll. 15-18
94. It is at this point – after the Interconnection Studies – that BC Hydro expects
bidders to submit their CEAP bids. At this point, bidders would have absolutely no
information in respect of any network upgrades their projects would require. BC Hydro has,
in the past, adjusted bids for the cost impacts of these network upgrades. According to
Attachment XX, bidders would have no idea of what these adjustments would be at the time
they are required to submit their bids. And bidders would have no ability to reconfigure their
projects or take other measures to mitigate the impacts of those costs on the viability of their
bids. BC Hydro claims (at para. 63 of its argument) that it will make use of these studies to
evaluate bids and build portfolios. In BCTC’s submission these studies produce nothing that
is of any benefit to BC Hydro in evaluating bids or building portfolios because of the limited
nature of the studied facilities and the fact that those facilities are to be paid for by the
interconnection customer. In short, both the interconnection queue and transmission queue
has been paralysed for 60 days, and neither BC Hydro nor the bidders have much to show for
it.
-
- 35 -
Evidence of Mr. Fussell, Tr. 9 p.1314 ll. 20-21
95. It may be possible that BC Hydro did, in fact, intend for network upgrades to
be studied as part of the Attachment XX Interconnection Studies despite Mr. Reimann’s
evidence. Based on the plain meaning of Attachment XX, and BC Hydro’s response to IR
where BC Hydro confirms that Interconnection Studies for purposes of Attachment XX are
the same Interconnection Studies contemplated by the SGIP, it is possible that the
Attachment XX Interconnection Studies are intended to consider network upgrades as is the
case with the SGIP Interconnection Studies. But this, too, has its problems. If cluster effects
are ignored in these studies the results will be inaccurate because the facilities required to
interconnect each project, including the network upgrades, would be examined ignoring the
impact on those facilities of other projects. If clustering effects are considered, the results
will also be inaccurate because at this stage in the Attachment XX process BC Hydro has not
yet identified the eligible combinations of projects that meet the CEAP requirements. As a
result, these studies will have to consider and report on the impacts of combinations of
projects that will subsequently be determined by BC Hydro to be ineligible portfolios for
purposes of the CEAP.
Evidence of Mr. Reimann, Tr. 9 p. 1314, ll. 15-18
Ex. B2-13, BCTC-BCH IR 2.10.1
96. BC Hydro appears interested in having BCTC complete these Interconnection
Studies and provide them to bidders so that bidders can self-assess their projects. Bidders
with high interconnection cost estimates could then voluntarily with