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dam-l The Rutland Herald Online - Hydro-Quebec gets freer rein on rates, dams
http://rutlandherald.nybor.com/News/Story/8835.html
Hydro-Quebec gets freer rein on rates,
dams
June 18, 2000
By JOHN DILLON Staff Writer
The Quebec legislature has passed a bill that effectively guts
independent oversight of Hydro-Quebec's rates and controversial
dam-building projects.
Critics - including environmentalists and Hydro-Quebec's largest electric
customers - fear the measure means the giant, monopoly utility will be
answerable to no one but its sole shareholder, the government of Quebec.
"They (Hydro-Quebec) are in a growth mode. They would like to build
more to sell more. The question is who do they have to make their case to
go ahead and build," said Ashok Gupta, energy economist with the
Natural Resources Defense Council, a national environmental group.
With the new legislation, "there would be no independent review of
that decision-making process," said Gupta, who works out NRDC's New
York City office.
The legislation, dubbed Bill 116, passed late last week after just 30
minutes of debate, said Philip Raphals, associate director of the Helios
Center for Sustainable Energy Strategies, a Montreal non-profit energy
research and consulting group.
The bill amends a 1997 act that established the Regie de L'energie, an
independent board designed to review Hydro-Quebec's projects, its rates,
long-term plans and energy efficiency measures.
The legislation has no immediate direct impact on Vermont, where
utilities have long-term contracts with Hydro-Quebec that last until
2016. Hydro-Quebec's Vermont spokesman, Montpelier lawyer Richard Saudek,
said the measure is aimed at stabilizing rates for Quebec residents.
"I can't see how this could possibly impact Vermont. I think it's
very much an internal matter and an attempt to cap the cost to Quebeckers
of Quebec power," Saudek said.
But critics of the legislation say the bill frees the monopoly utility to
build new projects and export more power to the United States without
oversight. Under the rate structure established in the bill, Quebec
residents will in effect be subsidizing the cost of power that is sold to
the U.S., the critics say.
Under Bill 116, Quebec residents would pay a fixed price of 2.79 cents
(in Canadian dollars) per kilowatt hour, for up to 165 terawatt hours.
(One terawatt is a billion kilowatts.) An analysis conducted by Merrill
Lynch found that this price is high enough to generate an 18 percent rate
of return for Hydro-Quebec, Raphals said. Quebec residents and businesses
use about 150 terawatt hours a year so the remaining 15 terawatts could
be exported to the United States, with the costs already covered by
Quebec ratepayers, according to Raphals.
Gupta, of the NRDC, said the legislation will allow Hydro-Quebec to
unfairly compete in the U.S. market. Gupta believes Hydro-Quebec's
exports already contradict the spirit of the North American Free Trade
Agreement (NAFTA), the pact that was supposed to reduce trade barriers
between Canada, the U.S. and Mexico. While Hydro-Quebec frequently sells
into the U.S. spot energy market, U.S. utilities have little access to
the Quebec market, he said.
"Using provincial monopolies to engage in anti-competitive practices
in the newly deregulated electricity markets in the northeastern states
is exactly the type of activity that NAFTA is designed to prevent,"
Gupta said. "Companies that benefit from monopoly protection in
their home jurisdictions should not be permitted to undersell the
competition in New York and other states with subsidized power."
Hydro-Quebec is uniquely positioned to sell into the U.S. market during
times of peak summer demand, when prices are high. Unlike conventional
utilities, which often rely on oil-fired or nuclear plants, Hydro-Quebec
has giant reservoirs that act like immense storage batteries. This means
the utility - whose own customers use more power in the winter - can hold
back water when levels are high from spring snow melt to generate and
sell power for summer export.
New England utilities now trade in a newly deregulated wholesale
electricity market. Last summer and earlier this spring, prices for
short-term power skyrocketed. On May 8, for example, unusually warm
weather sent prices surging to $6,000 per megawatt hour, about 200 times
their normal level. Hydro-Quebec clearly wants to tap that lucrative
market.
"Hydro-Quebec will sell when prices are high and buy when prices are
low," Jacques Brassard, Quebec's natural resources minister said
last month. "It will then stock energy in its reservoirs. This is
the game and it is profitable."
Hydro-Quebec saw its net income increase 33.4 percent last year to $906
million, a banner year of higher profits for the company. Sales to the
U.S. represent 11 percent of revenues. Last year, the company paid a
dividend of $453 million to the Quebec government, its sole shareholder.
Luc Boulanger, who represents Hydro-Quebec's large industrial users
including aluminum smelters that use vast amounts of electricity, said
the provincial utility should be regulated based on its costs, the
traditional method used in the U.S. to control utility monopolies. Under
cost-of-service regulation, rate-setting commissions such as the Vermont
Public Service Board examine the costs of generating or buying
electricity and allow a utility to set rates to recover those costs, plus
a reasonable profit for its shareholders.
If Hydro-Quebec was subjected to traditional cost-of-service regulation,
its rates would decline, Boulanger said.
"This is very simple, it's a matter of who's going to put his hand
on the cash," he said. "If we had bonafide rate regulation, we
would have a 10 percent decrease ... The government admits they will make
an 18 percent return. No regulator would give them that much, so just by
stating that, we know something is haywire."
q q q
Environmentalists and advocates for the Cree people of northern Quebec
are also concerned about the legislation that removes the utility's
dam-building projects from oversight by the Regie de L'energie. NRDC, the
Sierra Club and other environmentalists have fought the dam projects
because they have destroyed habitat for migratory birds and flooded huge
areas of the Cree's homeland.
"We opposed the bill wholeheartedly. It's a step back into the Dark
Ages," said John Bennett, director of atmosphere and energy programs
for Sierra Club Canada in Ottawa. "This is a way to hide the
activities of the largest corporate concern in Quebec. ... It will give
unlimited power to a government-owned monopoly."
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