Application for 2014–2015 Rate Adjustment: Start of Public Hearings

Hydro-Québec’s rates are among the lowest in Canada and North America as a whole. Even with the requested adjustment, rates will remain highly competitive for both residential and business customers.

Electricity rates reflect Hydro-Québec Distribution’s anticipated cost of service for the year to come. The Régie approved an increase in 2013, but before that, customers had enjoyed two rate reductions in a row.

The heritage pool consists of 165 TWh of electricity that Hydro-Québec Production sells to Hydro-Québec Distribution at a lower price (2.79¢/kWh). It meets about 90% of Québec customer needs.

Starting in 2014, as provided for by the Act respecting the Régie de l’énergie, the price of heritage pool electricity will be pegged to the Consumer Price Index. That will result in an extra cost to Hydro-Québec Distribution, hence its 0.8% impact on the overall adjustment of 3.4%.

No. Industrial customers won’t be affected by the indexing of the heritage pool, so the increase requested for them is 2.6%.

The commissioning of several new wind farms in 2013 and 2014, under purchasing programs decreed by the Québec government, accounts for +2.7% of the requested adjustment.

That’s because wind power costs more than 10¢/kWh, while the mean cost of Hydro-Québec Distribution’s supply is about 3¢/kWh. Wind power thus puts upward pressure on the mean cost and has an impact on rates.

Demand doesn’t evolve the same way in all sectors of the economy: it is currently dropping in the industrial sector, but rising among residential and commercial customers, particularly in some regions. That’s why it is sometimes necessary to invest in additions to our transmission and distribution systems in order to meet the demand of Québec customers.

Hydro-Québec has achieved significant efficiency gains in recent years by improving processes and cutting back on staff. This year, Hydro-Québec will offset some of the additional costs with $160 million in efficiency gains, which means customers will benefit from a lower rate adjustment than would otherwise have been the case.

These new efficiency efforts are in addition to those that have been implemented since 2008, bringing total gains to $385 million.

By maintaining tight control over costs, Hydro-Québec is able to partially absorb the pressure of inflation and the natural growth in its business in response to the needs of Québec customers.

Hydro-Québec Distribution will maintain its programs for low-income customers. It is proposing a budget of $17.8 million, mainly to help customers who have personalized arrangements to pay their electricity bills and arrears.

Hydro-Québec Distribution is also proposing to invest close to $10 million in energy efficiency programs for those customers.

Hydro-Québec’s profits benefit all Quebecers. Keep in mind as well that Hydro-Québec’s rates are among the lowest in Canada and the rest of North America. Lowering rates would encourage the overconsumption of electricity and favor the customers who use the most.

Hydro-Québec does not sell power more cheaply to outside markets. Hydro-Québec’s residential customers pay among the lowest rates in North America.

When Hydro-Québec delivers large amounts of high-voltage power to a single location, whether in Québec or elsewhere, its cost is lower than if the company delivered the same amount at low voltage to tens of thousands of different locations (Québec homes, in this case). That explains the difference between the wholesale and retail prices. A wholesaler sells a product to a single distributor at a certain price, and the distributor resells it to its own customers at a higher price because it has to transport and distribute the product to many points of sale, provide customer service, and so on.

That’s the way it works with the power we export. It’s delivered to US wholesale markets through Hydro-Québec TransÉnergie’s transmission system. Our customers are distributors that deliver the power to individuals and who, therefore, charge their customers a higher price.

In Québec, Hydro-Québec sells electricity to residential, commercial and industrial customers, which requires building, operating and maintaining a vast distribution network, providing customer service, and so on.

By way of comparison, in 2012, consumers in Boston paid an average of 16.45¢/kWh, while Québec consumers paid 6.76¢/kWh.

For many years, the domestic rate has been adjusted annually so that a larger part of the increase affects second-tier consumption than the first. The second tier generally applies to uses related to space and water heating, i.e., uses customers can control. Accordingly, the more electricity a residential customer uses, the higher the unit price.

The province’s industrial development strategy is established by the Québec government, and rates match customer consumption profiles. An industrial customer’s profile is generally steady throughout the day, summer and winter alike. The cost of equipment used to provide service is thus recovered over a greater number of kilowatthours.

Residential customers, in contrast, use more power during the day (especially mornings and evenings), and very little overnight. Customers who heat with electricity have a seasonal profile, using the most electricity at the winter peak.

Last, unlike residential customers, whose are supplied with power at low voltage, large-power customers are generally supplied at high voltages, so Hydro-Québec avoids some transformation costs.