2015–2016 Rate Application

Hydro-Québec’s rates reflect the costs incurred to provide electricity service, including costs related to wind power supplies and the increase in the price of the heritage pool as well as investments the company must make in the distribution network to supply power to its customers.

Consequently, there is no connection between the company’s annual income and the costs presented to the Régie de l’énergie in the rate application. Moreover, Hydro-Québec has managed to lower these costs, and thus the amount of the required adjustment, through efficiency gains.

Each year, Hydro-Québec Distribution is obligated to submit to the Régie de l’énergie the budget it will need to provide electricity service to Quebecers for the next year. In Québec, the Régie, an independent economic regulation agency, sets electricity rates based on the costs of serving Québec customers. The Régie issues its ruling on the rate case following a strict regulatory process in which a variety of stakeholder groups, including consumer associations, review and discuss the Hydro-Québec Distribution budget.

The annual dividend paid by Hydro-Québec to the Québec government, which comes directly from the company’s profits, is used to finance public services, thus benefiting all Quebecers.

Even with the requested adjustment, Hydro-Québec’s residential rates will still be the lowest in Canada and among the lowest in all of North America.

Electricity rates reflect Hydro-Québec Distribution’s anticipated cost of service for the year to come. The Régie approved an increase in 2014 and 2013, but before that, customers had enjoyed two rate reductions in a row.

The heritage pool consists of 165 TWh of electricity per year that Hydro-Québec Production sells to Hydro-Québec Distribution at a lower price. It meets about 90% of Québec customer needs.

As provided for by the Act respecting the Régie de l’énergie, starting in 2014, the price of heritage pool electricity is pegged to the Consumer Price Index. Accordingly, the mean cost of the heritage pool will rise from 2.82¢/kWh in 2014 to 2.84¢/kWh in 2015. For Hydro-Québec Distribution, this results in an extra cost whose impact accounts for 0.4% of the 3.9% overall adjustment requested for 2015.

No. Large-power industrial customers won’t be affected by the indexing of the heritage pool, and so the increase requested for them is 3.5%.

The commissioning of wind farms, under purchasing programs established by the Québec government, is putting upward pressure on overall electricity supply costs for the Québec market.

That’s because wind power costs more than 10¢/kWh, while Hydro-Québec Distribution’s mean supply cost is about 3¢/kWh. New wind power supplies therefore drive up rates.

Demand doesn’t evolve the same way in all sectors of the economy: it is currently dropping in some industries, but rising among residential and commercial customers. That’s why it is sometimes necessary to invest in additions to the 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, some of the additional costs will be offset by efficiency gains (-0.5 %), which means customers will benefit from a lower rate increase 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 achieved for transmission and distribution to $440 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 in support of low-income customers. It is proposing a budget of $25.8 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 $8 million in energy efficiency programs for those customers.
We would like to remind everyone that customers having trouble paying their electricity bills should contact Hydro-Québec to set up a payment arrangement based on their ability to pay.

Hydro-Québec’s profits benefit all Quebecers. Keep in mind as well that Hydro-Québec’s residential rates are the lowest in Canada and among the lowest in all of North America.

Lowering rates would encourage the overconsumption of electricity and favor 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 over Hydro-Québec TransÉnergie’s transmission system. Our customers are distributors that deliver the power to individuals and 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 2014, consumers in Boston paid an average of 20.42¢/kWh for 1,000 kWh/month, while Québec consumers paid 7.06¢/kWh.

For many years, the domestic rate has been adjusted annually in such a way that a larger part of the increase affects second-tier consumption than the first. The second tier generally applies to electricity used for space and water heating, that is, 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, who are supplied with power at low voltage, large-power customers are generally supplied at high voltages, so Hydro-Québec avoids some transformation costs.