BChydro E XHIBIT T RANSMISSION S ERVICE R ATES Joanna Sofield Chief - - PDF document

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BChydro E XHIBIT T RANSMISSION S ERVICE R ATES Joanna Sofield Chief - - PDF document

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BC H YDRO B-3 BChydro E XHIBIT T RANSMISSION S ERVICE R ATES Joanna Sofield Chief Regulatory Officer Phone: (604) 623-4046 Fax: (604) 623-4407 regulatory.group@bchydro.com March 14, 2008 Ms. Erica M. Hamilton Commission Secretary British

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BChydro

Joanna Sofield Chief Regulatory Officer Phone: (604) 623-4046 Fax: (604) 623-4407 regulatory.group@bchydro.com

March 14, 2008

  • Ms. Erica M. Hamilton

Commission Secretary British Columbia Utilities Commission Sixth Floor - 900 Howe Street Vancouver, BC V6Z 2N3 Dear Ms. Hamilton: RE: Project No. 3698503 British Columbia Utilities Commission (BCUC) British Columbia Hydro and Power Authority (BC Hydro) Transmission Service Rates Application Attached as Exhibit B-3 is a copy of BC Hydro's presentation from the Workshop held on March 13, 2008. For further information please contact the undersigned. Yours sincerely, Joanna Sofield Chief Regulatory Officer Enclosure

c.

Be Hydro 2007 Rate Design Application Intervenors

British Columbia Hydro and Power Authority, 333 Dunsmuir Street, Vancouver BC V6B 5R3 www.bchydro.com

B-3 BC HYDRO TRANSMISSION SERVICE RATES EXHIBIT

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Transmission Service Rate (TSR) Re-pricing Application

Workshop March 13, 2008

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TSR Re-pricing Application

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Agenda

BC Hydro application dated February 22, 2008 to amend the energy charges

  • f transmission service rates: RS 1823; RS 1825; RS 1880; RS 1890.
  • Overview of Application
  • Introduction and Approvals Sought
  • Regulatory Process and Timetable
  • Stepped Rate Background
  • RS 1823 Rate changes
  • RS 1823 Revenue Implications
  • RS 1825 Rate changes
  • RS 1880 Rate changes
  • RS 1890 Rate changes
  • Overview of F2007 TSR Annual Report
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TSR Re-pricing Application

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Introduction

  • Energy charges for transmission service rates are based (in part) on the long-term

cost of new supply, and indexed to the RS 1823 Tier 2 Rate.

  • Existing RS 1823 Tier 2 Rate of $54/MWh is based on the weighted-average

plant-gate price from F2003 province-wide Green Power Generation Call.

  • Proposed RS 1823 Tier 2 Rate of $73.60/MWh is based on the levelized,

weighted-average plant-gate price from F2006 Call for Tender (F2006 CFT).

  • F2006 CFT provides the most recent and appropriate indication of BC Hydro’s

long-term cost of new supply.

  • Re-pricing proposal is consistent with design principles of transmission service

rates (including retail access) and the 2005 Negotiated Settlement Agreement (2005 TSR NSA).

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TSR Re-pricing Application

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Approvals Sought

  • 1. Amend energy charges of transmission service rates (RS 1823; RS

1825; RS 1880; RS 1890) effective April 1, 2008 on an interim basis.

  • 2. Obtain relief for the forecast revenue shortfall that is incidental to the

Re-pricing of the RS 1823 Tier 1 and Tier 2 Rates.

  • The rate relief/regulatory asset will not be necessary if the approval for the new

RS 1823 Tier 1 and 2 Rates is received from the BCUC prior to the filing of the evidentiary update for the F09/F10 RRA.

  • 3. After review of application, final Order to be issued setting Tier 2 Rate,

but allowing for interim Tier 1 Rate pending resolution of the F09/F10 RRA.

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TSR Re-pricing Application

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Regulatory Process

F09/F10 RRA

(Order No.G-21-08)

RIB Rate/ TSR Re-Pricing

(Orders No.G-31-08 and G-29-08)

Workshop March 6 March 13 BCUC IRs March 12 March 18 Intervenor Registration March 20 March 20 Intervenor IRs March 25 March 25 BC Hydro Responses April 23 April 18 Procedural Conference April 28 April 28

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Transmission Rates Summary

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TSR Re-pricing Application

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Background – New Transmission Rates

  • November 25, 2002 … BC Energy Plan
  • October 17, 2003 … BCUC Report and Recommendations on Heritage Contract and

Stepped Rates

  • April 1, 2004 … Government Special Direction No. HC2
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TSR Re-pricing Application

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Background – Stepped Rate Design Principles

  • RS 1823 is a two-step conservation rate which separates the pricing of annual energy

consumption relative to the historic customer baseline load (CBL)

  • Tier 2 Rate based on the long-run opportunity cost of new energy supply
  • Tier 1 Rate calculated residually to recover the balance of the cost of service relative

to RS1827 (revenue neutral)

  • Intent of Tier 2 Rate is to send a price signal that acts as a financial incentive to

encourage conservation, efficiency and incremental self-generation

  • Premise is that customers will pay less for energy if they use less … and pay more if

they use more … relative to CBL

  • Strike a balance between providing incentives to conserve and imposing hardship for

growth/expansion

  • Allow open access to the transmission system so that customers can choose to

purchase electricity from alternate third-party providers

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TSR Re-pricing Application

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2 4 6 8

RS 1827 (flat rate)

2 4 6 8

Tier 2 Energy = 10%

100 GWh 90 10

Tier 1 Energy = 90%

$27.70/MWh $24.77/MWh $54.00/MWh

RS 1823 (stepped rate)

=

Background - Stepped Rate Design

Initial Customer Baseline Load (CBL) based on calendar 2005 energy purchases

100% x RS1827 = 90% x Tier 1 + 10% x Tier 2 RS 1827 = RS 1823 (at CBL consumption)

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TSR Re-pricing Application

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Background – RS 1823 Tier 2 Rate

  • BC Hydro’s March 2005 Transmission Service Rate Application (2005 TSR

Application) was resolved by way of a Negotiated Settlement Process.

  • The Tier 2 Rate of $54/MWh was set based on the weighted-average plant gate

price of energy contracts from the F2003 Green Power Generation Call.

  • BC Hydro proposed that the Tier 2 Rate would be set at $54/MWh until the results of

the next province-wide CFT for energy were available.

  • As part of the Negotiated Settlement Agreement (2005 TSR NSA), participants

agreed that:

“To strike a balance between the participant’s respective positions, it is agreed that the earliest date the Tier 2 price will be adjusted is April 1, 2008 at which time it will be reset to reflect the most appropriate CFT price.”

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Rationale – Proposed RS 1823 Tier 2 Rate

  • F2006 CFT provides the most recent and appropriate indication of the long-term

cost of new supply.

  • Existing RS 1823 Tier 2 Rate of $54/MWh based on the weighted-average plant-gate

price (in nominal dollars) from F2003 province-wide Green Power Generation call.

  • Proposed RS 1823 Tier 2 Rate of $73.60/MWh based on the levelized, weighted-

average plant-gate price from F2006 CFT.

  • “Plant-gate” reflects exclusion of electricity delivery costs
  • “Levelized” reflects cost of new supply over a variety of contract terms
  • Levelized, weighted-average plant-gate price calculation:

> Total plant-gate cost of contracted energy per year = $525M > Total contracted energy volume per year = 7,125 GWh > Weighted-average price = $525M / 7,125 GWh = $73.60/MWh

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TSR Re-pricing Application

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Rationale – Proposed RS 1823 Tier 1 Rate

  • Changes to the RS 1823 Tier 2 Rate drive consequential changes to the RS 1823

Tier 1 Rate:

> Tier 1 Rate = [(RS 1827 Rate – 0.1 * Tier 2 Rate)/0.9]

  • Revenue requirement and rate rebalancing changes drive consequential changes to

RS 1827:

> Current RS 1827 Rate = $27.70/MWh > Proposed F2009 revenue requirement rate increase = 6.56% > Proposed rate rebalancing (suspend effects) = 0%

  • Illustrative view of proposed RS 1823 re-pricing for F2009:

> Tier 2 Rate = $73.60/MWh > RS 1827 Rate = $27.70/MWh x 1.0656 = $29.52/MWh > Tier 1 Rate = [($29.52 – 0.1 * $73.60)/0.9] = $24.62/MWh

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TSR Re-pricing Application

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RS 1823 Energy Charges – Illustrative*

RS1827 Rate = $27.70/MWh

$ $73.60/MWh

73.60/MWh

$ $24.62/MWh

24.62/MWh

$24.77/MWh $54.00/MWh

* This illustration reflects a Tier 2 Rate of $73.60/MWh, an interim F2009 revenue requirement

rate increase of 6.56%, and no rate rebalancing. The rate increase is applied first to the RS1827

  • Rate. With the Tier 2 Rate fixed, the Tier 1 Rate is calculated residually to achieve revenue

neutrality with RS 1827 at CBL consumption.

RS1827 Rate = $29.52/MWh

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TSR Re-pricing Application

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Revenue Implications – Revenue Neutrality

  • RS 1823 designed to be “revenue neutral” with RS 1827 at customer’s CBL consumption
  • Revenue neutrality = customer load precisely matches customer CBL
  • Revenue neutrality = bill neutrality at customer CBL consumption
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Revenue Implications of RS 1823 Re-Pricing

  • Forecast revenue shortfall arises solely from proposed RS 1823 price changes
  • Forecast load / Tier 1 and Tier 2 energy price mix is the same
  • Tier 2 revenue increase does not offset the Tier 1 revenue decrease
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RS 1825 (Time of Use Rate)

  • RS 1825 was approved by the BCUC at the same time as RS 1823
  • Changes to the RS 1823 Tier 2 Rate drive changes to RS 1825
  • RS 1825 Tier 2 rates on an annual weighted basis are equal to the RS 1823 Tier 2 Rate
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TSR Re-pricing Application

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RS 1880 (Standby and Maintenance Supply)

  • RS 1880 is a non-firm service for transmission customers with self-generation who

may be required to take energy from BC Hydro on an ad hoc basis to make up for reduced self-generation when all or part of their generating plant is curtailed.

  • The rate charged for energy taken under RS 1880 (during High Load Hours) is equal

to the RS 1823 Tier 2 Rate

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TSR Re-pricing Application

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RS 1890 (Energy Imbalance for Retail Access)

  • RS 1890 is for RS 1823 customers who have entered into a Retail Access

Program Agreement with a third-party supplier of electricity.

  • RS 1890 energy imbalance prices are equal to the seasonal TOU Tier 1 and Tier 2

rates (including HLH and LLH pricing).

  • The consequential Tier 2 rates are shown in the table below.
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RS 1890 (Energy Imbalance for Retail Access)

Tier 1 rate Tier 2 rate

+ 10%

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F2007 TSR Annual Report Highlights - DSM

  • TSR Annual Report for the period April 1, 2006 – 31 March, 2007
  • Adjusted F2007 CBL = 15,916 GWh (108 customer sites)
  • 24 customer sites increased energy sales above 100% of CBL
  • 84 customer sites reduced energy sales below 100% of CBL
  • Actual F2007 RS 1823 energy sales = 14,853 GWh
  • F2007 Reported Customer DSM = 428 GWh (conservative)
  • DSM = Tier 2 Rate and Power Smart programs working in combination
  • Customer DSM Projects in CBL =

167 GWh

  • Incremental F2007 self-gen (make more) =

138 GWh

  • Incremental F2007 DSM (use less) =

123 GWH

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CBL Establishment Process

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F2007 CBL Adjustments

  • CBL is not fixed (subject to continuous review and adjustment)
  • CBL adjustment process is very complex
  • F2007 Adjustments made per CBL Guidelines and Tariff Practices
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Revenue Variance

  • Energy revenue = energy sales * energy price
  • Any deviation from CBL will create revenue variance
  • Revenue variance is a natural consequence of the stepped rate design
  • Revenue variance will occur on a forecast and actual basis
  • Revenue variance impacts revenue neutrality
  • Drivers of Revenue Variance
  • The CBL is dynamic (CBL variance)
  • Customer load is dynamic (load variance)
  • CBL variance and load variance cause energy price mix variance
  • Energy price mix variance is a change in the relative mix of Tier 1 and Tier 2

energy sales at any given annual sales volume

  • If customer load > CBL … there will be a revenue gain
  • If customer load < CBL … there will be a revenue reduction
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Revenue Comparisons

  • Summary
  • Different revenue comparisons can be made at different points in time
  • Dynamic interplay between actual load, forecast load and CBL
  • Demand response is natural (desired) consequence of stepped rate design
  • Demand response contributes to revenue reduction (relative to CBL)
  • Other non-DSM factors contribute to revenue reduction
  • F2007 revenue loss incorporated into BC Hydro net income statement
  • F2007 revenue loss borne by BC Hydro’s shareholder
  • F2007 Revenue Comparisons
  • F07/08 RRA Forecast vs CBL = $7 M revenue gain (Table 5)
  • Actual vs CBL = $49.6 M revenue loss (Table 7)
  • Actual (RS 1823) vs RS 1827 = $20.2 M revenue loss (Table 8)
  • Actual vs F07/F08 RRA Forecast = $57.7 M revenue loss (Table 9)