Montréal, October 5, 2015
Québec Hydropower: Stable Prices, Reliability and Low Carbon Energy
Following publication of Sue Tierney’s report on “Potential Costs and Other Implications of the Proposed Senate Bill 1965” (New England Power Generators Association Website), Hydro-Québec wishes to correct inaccurate information about the existing long-term contract it has with Vermont utilities, which is very beneficial for Vermont consumers. Hydro-Québec seeks to clarify the advantages of that contract, as well as future long-term contract opportunities that may be available as a result of Massachusetts bill SB 1965. Hydro-Québec urges that the results of the report should not be relied on and its premise should be questioned.
The Tierney Report contains major flaws and underestimates the benefits of increased imports of Québec hydropower
First, the analysis in the Tierney report assumes that the Vermont contract price remains the same or increases each year. This is incorrect. While it is true that the price is recalculated each year, it follows wholesale market prices and decreases in periods of low wholesale prices.
Second, the analysis assumes that new transmission is paid for on top of the contract price. This is incorrect. The Vermont contract relies exclusively on existing transmission, primarily the Highgate line in Northwest Vermont. The impact of this assumption serves to overstate the report’s estimated cost significantly.
Third, Tierney’s analysis fails to recognize that the contract price includes ownership of the hydropower attributes as well as the delivered energy. This oversight is a major flaw in the report. Hydropower attributes have significant and growing value to New England markets and excluding their value from the analysis underestimates the value of the contract.
Fourth, the report incorrectly states that the long-term contract between New England utilities and Hydro-Québec for supply over the Phase II line was a single 10-year contract for 7 million MWh. In fact, two laddered ten year contracts that spanned from 1986 to 2000 were established for the delivery of 9-10 million MWh. Those contracts ensured buyer and supplier commitments and effectively allowed the construction of Phase II, a major transmission line connecting Hydro-Québec’s generation facilities to a substation located in Massachusetts, that continues to play a key role in the New England electricity market today.
Fifth, the report suggests that the impact of new hydro supply in the marketplace would hasten the retirement of nuclear facilities. This logic should be rejected. Nuclear plants are baseload resources with low operating costs and are among the first resources to be dispatched in the marketplace each day. Adding hydro supply to the mix in New England is likely to reduce dispatch of older, less efficient, higher emitting generation with high operating and fuel costs. Related to this point, the report also suggests that certain generating units that are needed to maintain reliable power system operations would be at risk of leaving that market. Hydro-Québec questions this assumption since processes and mechanisms are in place today at ISO New England to maintain reliable operations in response to the retirement of generating facilities.
Finally, HQ observes that the Tierney report appears to be in conflict with the operation of today’s electricity markets. It seems to suggest that new efficient sources of energy that may lower prices for consumers are a threat to the market because they could cause inefficient suppliers to exit the market. Most consider this to be the value proposition of the market.
Long-term contracts with Hydro-Québec have numerous benefits for consumers
The long-term contract arrangement between Hydro-Québec and Vermont utilities is extremely beneficial for Vermont consumers in two ways:
- It offers stable prices in a marketplace that can be highly volatile during peak summer and winter periods, and when power system equipment goes out of service
- It adjusts each year to reflect wholesale market price changes so it will never be significantly above or below the market price.
Beyond these price benefits, HQ hydropower provides significant reliability, fuel diversity and environmental performance benefits directly correlated to the current power system challenges facing the New England power system.
Hydro-Québec’s extensive network of hydropower generation resources and high-voltage transmission facilities gives it the ability to offer long-term commitments to the New England marketplace under a wide variety of structures. The company is prepared to consider similar arrangements with Massachusetts utilities and consumers with the passage of SB 1965 and through its partnership with Eversource Energy in the Northern Pass Transmission Project.
Hydro-Québec is in favor of SB 1965, as it enables a competitive solicitation to determine the true cost of delivered Quebec hydropower. Inaccurate and unnecessary speculation, such as that contained in the Tierney report, could thus be avoided.