Many thanks for your question. Conceptually, I believe you’re right about Canadian subsidies for transmission upgrades, particularly given the enormous scale of the transmission investments to connect new generation with both the existing HQ grid itself and the northeartern U.S. grids. Merchant generators competing with Canadian power sources would be hard pressed to internalize such costs, and it is clear that Canadian provinces and ratepayers are subsidizing generation and transmission build-outs to facilitate exports, with uncertain returns. To wit, we still have very little idea, even after four years of active discussions of these Canada-U.S. transmission projects, what HQ and other Canadian utilities ultimately intend to charge for power.

That said, the New England wholesale power market does not necessarily require U.S. power suppliers to recover capital costs through power sales, and there are instances where generators choose not to include the costs of their transmission links to the grid in their prices by supplying their power to particular locational “nodes” in the grid at the generators’ marginal generation costs. So the fact of the subsidies is not necessarily anti-competitive or anti-market.

However, comparing generators like power plants in New England and Canadian hydropower projects is very much an apples-to-oranges comparison; questioning the massive level of (expressly hidden) Canadian transmission subsidies seems very fair game. Those subsidies make the economics of the exports that much more tenuous and also undermine the transparency of the ultimate power pricing, which is about as clear as mud.

Christophe Courchesne

Quick question. Does Hydro-Quebec stand to receive governmental subsidies in Canada in connection with the Canadian transmission upgrades needed for the new US export projects? Specifically, are all or some of the costs of the Canadian transmission upgrades that are needed to tie HQ’s hydro plants into HQ’s US export links (Champlain-Hudson, Northern Pass, etc.) somehow being borne in Canada and not being fairly built into the price HQ charges US customers for its export power?

This came up recently in the context of the Champlain-Hudson transmission project, another Hydro-Quebec export initiative that is somewhat ahead of Northern Pass in the approval queues. CH’s February 1, 2013 brief filed with New York state authorities seems to suggest that, at least in the context of the CH project, Hydro-Quebec will not recover from US power buyers all or some part of the costs of the Canadian part of the transmission upgrades.

In other words, a significant part of the costs — Canadian transmission costs from the hydro plants to the US border, and interconnection costs — appears to be excluded, at least in part, from the charges HQ will ask US customers to pay for power delivered over the export lines. If this is correct, it would seem to undermine the notion that HQ is using fair, market-based pricing. If HQ’s US exports can be priced at levels that don’t reflect all the cost, this would seem to suggest the potential for unfair competition against US power suppliers. And if part of the actual costs of generation and export of HQ’s electricity are being skimmed off the cost base for US customers and stuck somewhere else, HQ’s publicly-stated premise of fair, market-based power pricing would seem to fall apart.

Here are two quotes:

“As the ALJs noted in the RD, the correctness of Dr. Paynter’s testimony regarding the need for adjustments to the cost of these transmission facilities was borne out by two facts: (1) the Québec Energy Board limited the cost of the transmission upgrades out of the Romaine project that could be assigned to purchasers of energy produced by that facility to only $918 million, or about half, of the $1.8 billion total cost of those transmission facilities; and (2) the Open Access Transmission Tariff (“OATT”) of TransÉnergie provides a credit against the
costs of interconnecting with the Facility that will substantially exceed the costs of the upgrades in Canada required to connect with the Facility, preventing any of those costs from being passed on to shippers.” (p.11)

“Applicants would note that in light of the plain provisions of the TransÉnergie OATT prohibiting the collection of the $346 million in upgrade costs from shippers using the Facility…” (p.14)

Thanks Christophe for any light you can shed on this.