NETWORK UPGRADE POLICY - regie-energie.qc.ca · 7 the following regarding the Transmission Provider’s network upgrade policy concerning 8 the increase in native load: 9 “Finally,

Hydro- QuébecTransÉnergie Application R-3669-2008

Original : 2008-07-29 HQT-10, Document 5Page 1 of 25

NETWORK UPGRADE

POLICY





Table of Contents

1. INTRODUCTION ......................................................................................................... 5

2. NETWORK UPGRADE POLICY OF THE TRANSMISSION PROVIDER.......... 7

2.1 Context...................................................................................................................... 7

2.3 Compliance of the Network Upgrade Policy with Régie decisions.......................... 9

2.4 Rate Impact of Network Upgrades ......................................................................... 11

3. APPLICATION OF THE ANNUAL MAXIMUM FOR NETWORK UPGRADESTO SUPPLY THE LOADS OF THE DISTRIBUTOR ................................................ 13

4. NETWORK UPGRADES FOR THE INTEGRATION OF WIND POWER TOSUPPLY THE NATIVE LOAD ...................................................................................... 16

4.1 Applicable Provisions Under the Open Access Tariff............................................. 16

4.2 Question Raised by the Régie ................................................................................. 16

4.3 Consequence for the Transmission Provider .......................................................... 17

4.4 Other Calculation Methods for the Contribution of the Distributor ....................... 19

4.4.1 Contribution for Switchyards........................................................................... 19

4.4.2 Applicable Charges for Surplus Costs Paid by the Distributor....................... 20

4.4.3 Conditions of Payment by the Distributor ....................................................... 20

5. SUMMARY OF THE TRANSMISSION NETWORK UPGRADE POLICY ........ 21

6. CONCLUSION ........................................................................................................... 25




1. INTRODUCTION1

In its recent decisions, the Régie de l’énergie (“Régie”) has asked the Transmission2

Provider to provide a follow-up for certain elements pertaining to its network upgrade3

policy.4

On the one hand, in decision D-2008-019, pursuant to the Transmission Provider’s5

application to modify rates and conditions starting on January 1, 2008, the Régie stated6

the following regarding the Transmission Provider’s network upgrade policy concerning7

the increase in native load:8

“Finally, the Régie questions the application of the Open Access Transmission9

Tariff in the case of upgrades to the network substations [“postes-source”] and10

also of upgrades to the substations on the main network (735 kV) which are due11

to an increase in the native load. Its concerns pertain to, among others, the12

risks of exceeding the maximum contribution when the upgrades are subject to13

several separate applications filed under Section 73. In that perspective, the14

Régie asks the Transmission Provider to discuss, in its next rate application, the15

issue of the application of the Transmission Provider’s maximum contribution16

which seeks to ensure rate neutrality for all upgrades required starting from17

supply (connection of generating stations) to the point of delivery.”1 [Unofficial18

translation of Régie decision, translator’s version]19

On the other hand, in decision D-2007-141, pursuant to an application filed by the20

Transmission Provider for the construction of assets required to connect 990 MW of21

wind power, which is purchased by the Distributor, to the Matapedia regional system, the22

Régie issued the following order:23

1 Régie de l’énergie, D-2008-019, February 15, 2008, page 97.



“In regards to the analysis on the Project’s rate neutrality, the Régie shares the1

opinion expressed by the AIEQ expert. To calculate which additional revenues2

must be considered to determine the Project’s rate impact, the parameter used3

must be an estimate of the variance of the Distributor’s needs on the system’s4

peak, therefore the usual criterion used to set a rate, and not the maximum5

capacity to be connected and transmitted on the system. This maximum6

capacity of 990 MW is applied as a design criterion of the network but not as a7

rate-setting criterion.”28

“Because it is a first case of this nature for the Distributor since the9

implementation of the regulatory framework resulting from decision D-2002-95,10

the Régie deems it necessary to examine all proposals or avenues that may11

ensure the rate neutrality of the project within the current regulatory framework,12

whether it be from a higher financial contribution from the customer, a13

complementary contractual agreement, otherwise. In its absence, the14

Transmission Provider will have to submit a proposal regarding the treatment of15

missing revenues from the Project, as required, pursuant to Section 49. In this16

case the Régie will advise consequently.”3 [unofficial translations of the17

decision, translator’s version].18

The current document responds to these orders set out by the Régie:19

Section 2 describes the network upgrade policy and its application by the Transmission20

Provider while section 3 explains the terms of application of the annual cap for the loads21

connected by the Distributor. Section 4 deals with the application of the network upgrade22

policy for wind farms selected by the Distributor its calls for tenders for electricity23

2 Régie de l’énergie, D-2007-141, December 18, 2007, page 24.3 Régie de l’énergie, D-2007-141, December 18, 2007, page 25.



purchases and, finally, section 5 provides a summary of the Transmission Provider’s1

network upgrade policy by explaining the underlying principles, and different cases to2

which it applies, for point-to-point and native load transmission services.3

2. NETWORK UPGRADE POLICY OF THE TRANSMISSION PROVIDER4

2.1 Context5

The Act respecting the Régie de l’énergie defines the Transmission provider as follows:6

“‘Electric power carrier’ means Hydro-Québec when carrying on electric power7

transmission activities”8

And it defines the transmission system as follows:9

“‘Electric power transmission system.’ ” means a network of installations for the10

transmission of electric power, including step-up transformers located at11

production sites, transmission lines at voltages of 44 kV or higher, transmission12

and transformation substations, and any other connecting installation between13

production sites and the distribution system. 414

According to these definitions, the network of installations for the transmission15

system that seek to meet native load requirements, and requirements for system16

integration and point-to-point transmission services, is included among the17

Transmission Provider’s assets. However, the Régie subsequently released18

certain rules that seek to limit the cost of network upgrades carried out to meet19

the requirements for transmission services. These upgrades are included in the20

Transmission Provider’s rate base.21

4 Act Respecting the Régie de l’énergie, R.S.Q, Chapter R-6-01.



2.2 Open Access Transmission Tariff1

The Transmission Provider’s network upgrade policy is described in Attachment J of the2

Open Access Transmission Tariff. According to this policy, the costs of transmission3

network upgrades that seek to respond to point-to-point, network integration and native4

load transmission service requirements, including for the connection of generating5

stations under Section 12A.2, are borne by the Transmission Provider up to the6

maximum amount that is specified, multiplied by the new maximum capacity to be7

transmitted on the system. The maximum amount proposed here is $636/kW. Any8

additional cost incurred by the Transmission provider to meet the need for transmission9

services or for generating station connections must be paid for by the requestor,10

augmented by 15% to account for operating and maintenance costs, and by applicable11

taxes.12

In the case of generating station connections, whether their purpose is to meet native13

load requirements or point-to-point transmission service requirements, the Transmission14

Provider also pays the additional cost of the switchyard, without exceeding the15

maximums set out in Attachment J, within the maximum amount described above. The16

Transmission Provider also bears the operating and maintenance costs of switchyards,17

at a rate of 15%, in addition to the maximum contribution that is applicable.18

As for the needs arising from growth in the Distributor’s native load served by satellite19

substations, the maximum amount applies to all projects carried out by the Transmission20

provider during the year and all load growth that such projects are to serve over a 2021

year period.22



In the case of temporary transmission services, a provision is also specified in the Open1

Access Tariff to reduce the maximum amount in proportion to the planned duration of2

service.3

2.3 Compliance of the Network Upgrade Policy with Régie decisions4

The Transmission Provider’s network upgrade policy was first approved by the Régie in5

decision D-2002-955 pertaining to the Transmission Provider’s application to modify6

rates and conditions starting on January 1, 2001.7

In that decision, the Régie accepted the Transmission provider’s proposal pertaining to8

the required system improvements to ensure the long-term operability of the system,9

whereby this equipment can be included in the Transmission Provider’s rate base if it is10

deemed by the Régie, in the framework of a rate case, to be a useful and prudent11

acquisition. These acquisitions serve to maintain a good operation of the system and to12

ensure flows that are safe and reliable, to the benefit of all users of the system.13

Also, concerning network upgrades pertaining to transmission service requests for14

network customers and point-to-point transmission services, the Régie confirmed in15

decision D-2002-95 that such upgrades could be included in the Transmission Provider’s16

rate base as long as the total amount paid by the Transmission Provider does not17

exceed the present value of the transmission service over 20 years, corresponding to18

the maximum contribution described above. In so doing, the Régie recognized that the19

rate impact of such network upgrades would, at worst, be neutral for all customers and,20

at best, favourable by reducing the transmission tariff for all customers.21

5 Régie de l’énergie, D-2002-95, pages 297-300.



However, concerning network upgrades to meet native load requirements, the Régie has1

disassociated itself from the Transmission Provider’s proposal to the effect that no2

maximum contribution should apply to native load. It stated that the same maximum3

contribution had to be applied to native load than in the case of network upgrades for4

network integration and for point-to-point transmission services so that all customers5

receive equal treatment and to avoid inequitable situations for transmission services6

other than those required to supply the native load.6 In that decision, the Régie did not,7

however, specify whether its apprehension for inequity was based on mutual conditions8

of access to the Transmission Provider’s system by third parties or on other9

considerations.10

In decision D-2006-66,7 the Régie approved the sum of the Distributor’s projects carried11

out within one year to meet the needs arising from growth in the native load served by12

satellite substations as well as the provisions of Attachment J pertaining to temporary13

services.14

Concerning the requests for the connection of generating stations, in decision D-2006-15

668, D-2007-089 and D-2007-3410 the Régie approved Section 12A proposed by the16

Transmission Provider in order to ensure rate neutrality for connections that were not17

selected by the Distributor in a call for tenders or when a call for tenders is waived. The18

Transmission Provider must ensure it receives transmission revenues that are at least19

equal to the costs associated with the integration of a generating station to the20

transmission network. Pursuant to Section 12A, a generating station owner is not21

required to provide the commitments under Section 12A for any generation obtained by22

6 Régie de l’énergie D-2002-95, page 299.7 Régie de l’énergie D-2006-66, page 35.8 Régie de l’énergie D-2006-66, pages 35-40.9 Régie de l’énergie D-2007-08, pages 71-78.10 Régie de l’énergie D-2007-34, pages 5-6.



the Distributor through a call for tenders or when such a call for tenders is waived since1

in that case the transmission customer is the Distributor which pays the Transmission2

Provider the transmission tariff applicable to native load to meet all of its supply3

requirements.4

2.4 Rate Impact of Network Upgrades5

In compliance with the Régie’s order, the rate impact of a network upgrade is evaluated6

by the Transmission Provider in the framework of applications it submits to the Régie for7

the connection of generating stations,11 requests for network upgrades for point-to-point8

transmission services,12 or system upgrades for supplying the native load.13 Thus, it has9

been demonstrated by the Transmission Provider on repeated occasions, and approved10

by the Régie, that the application of the specified maximum contribution has made it11

possible to preserve rate neutrality and that network upgrades do not lead to an increase12

of the transmission rate that is in effect.14 The application of the maximum contribution,13

multiplied by the new maximum capacity to be transmitted on the system, makes it14

possible to ensure that there is no discrimination based on the source of energy15

(hydraulic, thermal, wind, biomass, etc.) or on the end-use of generation (native load,16

point-to-point or network integration transmission services).17

11 Examples: Toulnoustouc generating station (R-3497-2002), Péribonka generating station (R-3581-2005),Chtes-Allard/Rapides-des-coeurs generating stations (R3585-2005), Integration of wind farms to theregional network of Matapedia (R-3631-2007).12 Example: construction of the 315 kV transmission line Chénier-Outaouais (R-3646-2007).13 Examples : Temporary connection of the Éléonore mining project to the transmission system (R-3656-2008), New Mont-Tremblant substation upgrade at 120-25 kV and two new supply lines at 120 kV (R-3651-2007), 2008 Investment Budget for the projects of the Transmission Provider for which the individualproject cost is below $25 million (R-3641-2007).14 For example see document of the Régie de l’énergie, D-2002-95, page 298, which refers to Exhibit HQT-10, Document 1.5, which shows the calculation method of the maximum contribution to ensure the rateneutrality of an investment.



When examining the rate neutrality of integration of new generation in the network, it is1

important to make a distinction between the characteristics of two (2) transmission2

services: point-to-point transmission services on the one hand and native load3

transmission services on the other. When new generation is integrated in the network for4

the use of point-to-point transmission services, the source of generation can be directly5

linked to deliveries from a single point of receipt and it must be subject to at least one of6

the commitments specified in Section 12A. The Transmission Provider then applies the7

maximum contribution to the source of generation, on the basis of the planned maximum8

capacity.9

In the case of supplying the native load, the Distributor must supply a large variety of10

loads with different supply characteristics from a portfolio of resources that also have11

different characteristics. In addition the Distributor can never directly identify a specific12

resource for the supply of a specific load. Therefore, the Transmission Provider applies13

the maximum contribution to the resources on the basis of the maximum capacity to be14

transmitted under the Open Access Transmission Tariff.15

The approach advocated by the Régie thereby seeks to limit the amount of the16

investments that will be added to the Transmission Provider’s rate base, by applying the17

maximum contribution to the native load transmission service, in order to limit the18

resulting rate impact. This approach is conservative when compared with the one that19

prevails in several jurisdictions that apply the “rolled-in” methodology, which makes it20

possible to include all the network upgrades for supplying the native load in the21

Transmission Provider’s rate base.22



3. APPLICATION OF THE ANNUAL MAXIMUM FOR NETWORK UPGRADES1TO SUPPLY THE LOADS OF THE DISTRIBUTOR2

In decision D-2008-019, the Régie “questions the application of the Open Access Tariff3

in the case of upgrades to the network substations and also to the substations on the4

main network (735 kV) which are due to an increase in the native load. This modification5

sought to include the network substations that supply industrial customers. (...) Its6

concerns pertain to, among others, the risks of exceeding the maximum contribution7

when the upgrades are subject to several separate applications filed under Section8

73.”15 [Unofficial translation of Régie decision, translator’s version]9

This issue refers to the last paragraph of Section C in Attachment J of the Open Access10

Tariff approved by the Régie in decision D-2006-066. In application R-3640-2007, the11

Transmission Provider wanted to clarify this paragraph of the Open Access Tariff. These12

clarifications were later removed by the Transmission Provider.13

The Transmission Provider wishes to specify that all investments required for its system14

to meet the needs arising from growth in native load do not only pertain to satellite15

substations.16

In fact, some of the Transmission Provider’s investments resulting from new loads for17

the customers of the Distributor that are directly connected to the transmission system18

are carried out before satellite substations. In such cases, to supply these new loads of19

the Distributor, the Transmission Provider can make modifications or upgrades to a20

network substation, or even a strategic one, which it must take into account when it21

establishes the Distributor’s required contribution. In order to establish the Distributor’s22

annual contribution, the investments made by the Transmission Provider are reduced by23

15 Régie de l’énergie, D-2008-019, pages 96- 97.



the amounts that the Distributor receives for the project from its customer, the requestor,1

when it exceeds the maximum contribution or when options are paid by the latter.2

Similarly, when investments on the transmission system before satellite substations are3

required to meet the needs arising from growth of the native load served directly by4

satellite substations, such investments are taken into account by the Transmission5

Provider in the establishment of the Distributor’s required contribution. The Transmission6

Provider therefore adds the cost of these investments to those associated with7

modifications to satellite substations without adding additional MW since these are8

already accounted for among the MW to supply satellite substations. In doing so, the9

Transmission Provider avoids any possibility of dual use of native load growth served by10

satellite substations when investments are required for a network substation, or even a11

strategic one, to supply native load.12

In response to an information request by the Régie,16 the Transmission Provider noted13

that it evaluates the Distributor’s contribution annually by comparing the total14

investments for projects associated with an increase of native load for a given year with15

the maximum contribution for network upgrades associated with these very projects. The16

maximum contribution for network upgrades that is used is the one approved by the17

Régie that is in effect by the date in which projects are actually commissioned. In order18

to ensure a better link with the actual costs associated with projects that supply the19

Distributor’s loads via satellite substations, the Distributor’s most recent growth forecast20

is used for each project.21

Finally, if for a given year the sum of the Transmission Provider’s total investments22

exceed the maximum amount applicable for all projects, the Transmission Provider23

16 R-3640-2007, HQT-14, document 1, pages 105 to 107, and document 1.1 page 54.



augments the surplus amount by 15% to account for operation and maintenance costs. It1

also augments it to take into account the applicable capital tax and public utilities tax.2

This surplus amount will be paid for by the Distributor. Conversely, if the sum of the3

Transmission Provider’s total investments is lower than or equal to the maximum amount4

applicable for all projects, no contribution is required from the Distributor.5

The following Table shows the summary of the annual evaluation of the Distributor’s6

annual required contribution for the years 2007, 2008 and 2009 relative to costs for7

network upgrades that are commissioned by the Transmission Provider to meet the8

needs arising from growth in native load. No contribution would be required from the9

Distributor for those three (3) years.10

Table 111

Evaluation of the Annual Contribution Required by the Distributor12

Year of Commissioning forProjects Associated withGrowth in Native Load

AdditionalMW over 20

years

Max.Contribution of

theTransmissionProvider in $M

ProjectCosts in $M

AnnualVariance in $M

(a) (b) = (a) x $k (c) (d)=(b)-(c)

2007: Actual Costs on Dec.31 2007

106 60 58 2

2008: Forecast 465 255 211 43

2009: Forecast 213 122 113 9

In order to answer to the Régie’s concerns in this regard, the Transmission Provider13

proposes to modify the last paragraph in Section C of Attachment J of the Open Access14

Tariff in order to make clarifications to the text. These modifications are presented in15

Exhibit HQT-12, Document 4.16



4. NETWORK UPGRADES FOR THE INTEGRATION OF WIND POWER TO1SUPPLY THE NATIVE LOAD2

4.1 Applicable Provisions Under the Open Access Tariff3

The Transmission Provider’s network upgrade policy under Attachment J of the Open4

Access Tariff, does not make a distinction based on the source of electricity generation.5

The maximum amount that is paid for by the Transmission Provider for network6

upgrades is equal to the maximum contribution under the Open Access Tariff, multiplied7

by the new maximum capacity to be transmitted on the system.17 Thus, for example, in8

call for tenders C/O 2003-02 for which the Distributor selected a capacity of 990 MW of9

wind power generation, the maximum amount that can be borne by the Transmission10

Provider for network integration is estimated at $568.3 million.11

4.2 Question Raised by the Régie12

In decision D-2007-141, the Régie questioned the rate neutrality associated with this13

provision of the Open Access Tariff in the case of electricity generated from wind power14

in particular. Based on the analysis of an intervenor in the case, the Régie established a15

direct correlation between the capacity of the specific resource, comprised of the 99016

MW of wind power derived from call for tenders C/O 2003-02, on the one hand, and an17

equivalent load that would be supplied by the Distributor on the other.18

In its Supply Plan, the Distributor shows in its capacity balance, the capacity that it is19

guaranteed under a wind power integration agreement concluded with the Generator for20

a five-year period. Under this agreement a capacity of 346 MW is guaranteed to the21

Distributor, which corresponds to 35% of the maximum capacity to be transmitted from22

17 Open Access Tariff, Attachment J.



wind farms over this period. On this basis, the Régie concluded that the project is not1

neutral on rates over a period of 20 years.2

The Régie suggested that to apply the Open Access Tariff to this specific resource did3

not make it possible to ensure rate neutrality and it asked the Transmission Provider to4

respond to the conclusion set out in its decision.185

4.3 Consequence for the Transmission Provider6

In the Transmission Provider’s opinion, the capacity of 346 MW that is specified in the7

agreement concluded between the Distributor and the Generator for the integration8

service for wind power generation is meaningless in terms of the costs associated with9

the planned network upgrades. In fact, the Transmission Provider must meet the10

Distributor’s request to integrate all the planned generation of 990 MW to the network11

independently of the source of generation used.12

For its part, the Distributor designates to the Transmission Provider the entire portfolio of13

resources it has available to ensure a reliable supply of electricity for native load. The14

Distributor’s resources come from hydraulic generating stations, fuel-fired generating15

stations, wind power, supply contracts, sales programs, imports or sharing of reserves16

with neighbouring networks, or any other resource. In some cases, the Transmission17

Provider must therefore resort to network upgrades to transmit electricity for projects for18

which a presence is planned on the system’s peak, as is the case of wind power, while19

in other cases the capacity available will not be subject to network upgrades for its20

transmission (in the case of imports or sharing of reserves with neighbouring networks).21

18 Régie de l’énergie, Decision D-2007-141, page 26.



Contrary to point-to-point transmission services, which specifically identify the load to be1

supplied, the function of native load transmission service, which is based on basic2

principles that are identical to those for the network integration transmission service3

resulting from FERC Orders 888, 889 and 890, is precisely to supply a wide variety of4

loads with different characteristics that are generated from a wide variety of resources5

that also each have different characteristics. One characteristic of the native load6

transmission service is therefore that it does not require the identification of specific7

resources to supply specific loads, which thereby significantly optimizes the native load8

transmission service it offers to the Distributor and increases the reliability and9

availability of the Distributor’s supply.10

By this very fact, the cost of network integration for some of the Distributor’s resources is11

low. For example, the cost of the network integration transmission service for the12

TransCanada Energy generating station in Bécancour is $84/kW, others have a cost of13

integration that is non-existent, like for example the sharing of reserves with14

neighbouring networks while others have a high cost of network integration, for example,15

the 990 MW of wind power in Gaspésie for which the cost of network integration is16

$605/kW.17

However, if the portfolio of resources used to supply the Distributor’s native load is18

considered as a whole, it can be easily noted that the portfolio of resources to supply the19

Distributor’s native load does not exceed the maximum contribution specified in the20

Open Access Tariff. It would therefore be inequitable for the Distributor, and21

discriminatory towards a given source of generation, wind power in particular, to modify22

the criterion specified in the Open Access Tariff to apply the maximum contribution for23

network upgrades to the maximum capacity to be transmitted, as well as to replace this24



criterion with another one that is based on customer-specific data which was not subject1

to a specific request from that customer to the Transmission Provider.2

Therefore, the Transmission Provider proposes to maintain the range and characteristics3

of transmission services that it currently offers without introducing exceptions for the4

connection of wind farms that supply the native load. In the case of wind farms as with5

any other resource acquired by the Distributor, the Transmission Provider proposes to6

apply the maximum contribution to the maximum capacity to be transmitted on the7

network, as specified in the Open Access Tariff.8

4.4 Other Calculation Methods for the Contribution of the Distributor9

In decision D-2007-141, the Régie also raised three other points pertaining to the10

calculation method for the Distributor’s contribution.11

4.4.1 Contribution for Switchyards12

The first point deals with the amount of 15% associated with the cost of switchyards that13

must be paid to wind farms owners to compensate for the operation and maintenance14

costs of the switchyard that will be incurred. Given that the maximum amount of costs15

borne by the Transmission Provider excludes the network’s operation and maintenance16

costs, the Régie rightly noted19 that the 15% that is paid to wind power generators for the17

switchyard must not be included when calculating the Distributor’s contribution, contrary18

to what was specified in the administrative Agreement dated March 30, 2007.19

The Transmission Provider will calculate the Distributor’s contribution when the work is20

complete by modifying it in this way.21

19 Régie de l’énergie, D-2007-141, Section 7, page 27.



4.4.2 Applicable Charges for Surplus Costs Paid by the Distributor1

The second point deals with the planned surplus costs that must be paid by the2

Distributor. Again, in decision D-2007-141, the Régie rightly noted20 that the Distributor’s3

planned contribution must be augmented by the specified amounts for operation and4

maintenance costs and taxes.5

The Transmission Provider will calculate the Distributor’s contribution when the work is6

complete by modifying it in this way.7

4.4.3 Conditions of Payment by the Distributor8

In that decision, the Régie also discussed the terms pertaining to the final payment of9

the Distributor’s contribution.21 Considering that the work pertaining to the network10

integration of wind farms selected by the Distributor will be carried out over a planned11

period of eight (8) years, from 2005 to 2012, the Transmission Provider and the12

Distributor have agreed, in an Administrative Agreement, that the maximum level of13

costs to be borne by the Transmission Provider would be established on the basis of the14

maximum contribution that will be in effect when all the work is completed. This condition15

does not involve any additional risks for the Distributor, which is an regulated entity like16

the Transmission Provider and who necessarily assumes a significant portion of the17

revenue requirement of the latter.18

The context is different when the Transmission Provider enters into a Connection19

Agreement with an electricity generator. In that case, in the model Connection20

Agreement that is described in the Open Access Tariff, 22 the total costs borne by the21

Transmission Provider cannot exceed the specified maximum contribution that is in22

20 Ibid.21 Régie de l’énergie, D-2007-141, Section 7, page 28.22 Open Access Tariff, Section 12A.1, page 34



effect at the time the agreement is executed. In that case, a differing condition would1

lead to an actual risk for the generator since the latter would not have any guarantee2

regarding the costs it would have to pay to the Transmission Provider. The regulatory3

and financial risk for the generator would be to the effect that from the time the4

connection agreement is executed to the time the generating station enters into service,5

several months or, in some cases, several years, may pass during which time the level6

of costs borne by the Transmission Provider may vary significantly, upward or7

downward.8

In the face of this uncertainty, generators and their financiers expect a fixed maximum9

contribution by the Transmission Provider rather than having to bear the uncertainty of a10

variable contribution over which they have no way to control the volatility.11

Therefore, the Transmission Provider does not recommend any changes to the12

conditions for the final payment of the Distributor’s contribution.13

5. SUMMARY OF THE TRANSMISSION NETWORK UPGRADE POLICY14

The Transmission Provider’s network upgrade policy applies on the basis rules specified15

in the Open Access Tariff, which respect the following principles:16

The Transmission Provider ensures the fair and reasonable service conditions to17

all of its customers;18

The singularities that are inherent to the supply of native load by the Distributor19

who has the obligation to serve its customers and must optimize its portfolio of20

resources is adequately considered;21

No specific resource is linked to one of the Distributor’s loads;22



The calculation of rate neutrality that is applicable, on either an annual or multi-1

annual basis, seeks to ensure that ultimately other customers of the2

transmission system will not be subject to significant negative impacts as a3

result of the capacity upgrades of customers. Rate neutrality is respected based4

on the duration and nature of the contractual transmission services;5

Rate neutrality that is established on a multi-annual basis, in current dollars,6

provides flexibility to link revenues from one or several service agreements that7

are executed to the cost of different projects that enter into service.8

The two following Tables summarize the Transmission Provider’s network upgrade9

policy, which applies to both point-to-point services for generating station connection10

and transmission services that require interconnections, as well as native load11

supply service for the connection of the Distributor’s generating stations and load12

supply. Similar provisions apply to the system integration transmission service.13

14



1

Point-to-Point Services

Generating station connections Interconnections

Customer Generators, including HQP, for allelectricity that is not selected in a call fortenders or when a call for tenders iswaived.

Any eligible customer under theOpen Access Tariff

Services Feasibility study, switchyard, networkintegration, network modifications,metering and telecommunicationsequipment.

Cost of network upgrades carriedout by the Transmission Providerfor new interconnections withneighbouring networks orincreasing capacity of an existinginterconnection, including thefeasibility study.

Maximumcontributionapplicable

The Transmission Provider pays for the costs of network upgrades up to themaximum contribution in $/kW, multiplied by the new maximum capacity to betransmitted on the system in kW.

Operation andMaintenance costsand applicable taxes

These costs are borne by the Transmission Provider for the portion of costs itmust pay and billed to the customer at a rate of 15% for surplus costs borneby the customer. The same applies to the applicable Capital Tax and thePublic Utility Tax.

Customercommitments

The requirement is a Toulnustouc-typecommitment or other type pursuant toSection 12A. Financial guarantees arerequired.

The requirements is a serviceagreement that covers the costsborne by the TransmissionProvider including O & M costsand taxes. Financial guaranteesare required.

Rate neutrality -Toulnustouc-Type: annual purchases forpoint-to-point services are ˃ annualpurchase commitments for a portfolio ofgenerating stations.

- Type 12A.2 i): rate neutrality in currentvalue, identical to interconnections.

- Type 12A.2 ii): annual transmissionrevenues are ˃ annual purchasecommitment for each generating station.

- Type 12A.2 iii) the TransmissionProvider does not bear any cost.

The actual value of plannedrevenues under the serviceagreement are ˃ costs borne bythe Transmission Provider,including O & M costs and taxes.

All surplus revenues in a serviceagreement are available for otherinterconnection projects or forgenerating station connections.

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1

Native Load Services

Generating station connections Load connections

Customer Hydro-Québec Distribution

Services Studies required for the Distributor’scall for tenders, feasibility studies,switchyard, network integration,network modifications, metering andtelecommunications equipment.

Impact assessments andfeasibility studies, addition ormodification of line equipment,transformer systems, shuntcompensation, automaticcontrols, protection systems,communications links and othercommunications equipment. Forthe customer loads that areconnected directly to thetransmission system, theDistributor’s rate provisions willapply to metering equipment aswell as the substation serving thecustomer.

Maximum contributionapplicable

The Transmission Provider bears theentire cost of network upgrades,including the feasibility study, up tothe maximum contribution, calculatedin $/kW, multiplied by the newmaximum capacity, in kW, to betransmitted on the system.

The Transmission Provider bearsthe entire cost of networkupgrades, including the feasibilitystudy, up to the maximumcontribution, calculated in $/kW,multiplied by the new maximumcapacity, in kW, to be transmittedon the system, by taking intoaccount all the projects that arecarried out by the Transmissionprovider within a year and all loadgrowth that such projects are toserve over a period of 20 years.

Operation andMaintenance costs andapplicable taxes

These costs are borne by the Transmission Provider for the portion ofcosts it must pay and billed to the customer at a rate of 15% for surpluscosts borne by the customer. The same applies to the applicable CapitalTax and the Public Utility Tax.

Customer commitments The Distributor pays all of the Transmission Provider’s revenuerequirement, except the revenues derived from system integration andpoint-to-point services.

Rate neutrality The Distributor includes a portfolio ofresources which is optimized basedon its energy requirements. Rateneutrality over 20 years is ensured bythe diversity and complementarities ofits resources

Rate neutrality is ensured whenthe cost in $/kW for load providedover a period 20 years for allcommissioned projects in a givenyear is < the maximumcontribution in $/kW.

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6. CONCLUSION1

The Transmission Provider’s network upgrade policy is compliant with previous Régie2

decisions. It makes it possible to ensure a fair and equitable treatment of all the3

Transmission Provider’s customers. This policy also allows the Transmission Provider to4

offer the reciprocity of access to its system, in compliance with the conditions set out in5

the Open Access Tariff, which are also compliant with the provisions of FERC Orders6

888, 889 and 890.7

In addition, in the case of wind power generation to supply native load, the Transmission8

Provider believes it is justified to uphold the provisions of the Open Access Tariff that are9

in effect, while ensuring that some concerns raised by the Régie pertaining to the10

operation and maintenance costs and the calculation of the Transmission Provider’s11

contribution are carried out in compliance with the Open Access Tariff.12

These provisions make it possible to ensure that the Transmission Provider continues to13

offer a fair and non-discriminatory treatment to the customers of its point-to-point14

services, comparable to the conditions offered to the affiliates of the Transmission15

Provider in neighbouring networks.16

Documents

NETWORK UPGRADE POLICY - regie-energie.qc.ca · 7 the following regarding the Transmission Provider’s network upgrade policy concerning 8 the increase in native load: 9 “Finally,