Comparative Example. Transfer Price Risk The following comparative example demonstrates how the 2020 TPA removes the transfer price risk that discouraged Powerex from relying on the BC Hydro system to support third-party purchase and sale transactions, under the 2003 TPA. For simplicity, this example is presented in isolation and the Trade Account and Transfer Volume Account are assumed to start at $0. In this example, Powerex, utilizing BC Hydro’s Residual System Capability, purchases 1,000 GWh of energy during the winter, for delivery to the BC Hydro system, at $20/MWh. Powerex then identifies a customer in California that seeks to purchase 500 GWh of energy on a forward basis, to be delivered in the summer, and negotiates a sale price at $40/MWh, expecting to source its commitment with a portion of the energy that it recently purchased and delivered to the BC Hydro system. Under the 2003 TPA, the first part of this scenario would have resulted in a credit of 1,000 GWh and $20 million to the Trade Account. The result of the second part would have depended on the difference between the Threshold Sale Price and the Applicable Mid-C Price, the day before the electricity was delivered to the customer in California. • If BC Hydro had set a Threshold Sale Price that was greater than the Applicable Mid-C Price, the export of 500 GWh would have been attributed to Powerex, reducing the balance in the Trade Account at the Weighted Average Price of $20/MWh from 1,000 GWh to 500 GWh and from $20 million to $10 million. Powerex would then sell that energy to the customer in California for $40/MWh, generating net income of $10 million, as it expected, to the benefit of BC Hydro ratepayers. • However, if BC Hydro had set a Threshold Sale Price that was less than the Applicable Mid-C Price, the export of 500 GWh would have been attributed to BC Hydro and treated as a sale of BC Hydro’s surplus. Powerex would have paid BC Hydro the Applicable Mid-C Price, as determined one-day-at-a-time. If the Applicable Mid-C Price was less than the price Powerex had negotiated with the customer in California (e.g., $30/MWh), Powerex would have paid BC Hydro $30/MWh for the energy and would still have generated net income, albeit a lower amount of $5 million (i.e., 500 GWh x [$40/MWh - $30/MWh]). If the Applicable Mid-C Price was greater than the price Powerex had negotiated with the customer in California (e.g., $50/MWh), however, Powerex would have paid BC Hydro $50/MWh for the energy and, would hav...
