Draft 2 Staff Discussion Paper Regulatory Options for Setting Payments for the Output from OPGs Pres

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Draft 2 Staff Discussion PaperRegulatory
Options for Setting Payments for the Output from
OPGs Prescribed Assets

• Presentation to Interested Parties
• June 16, 2006

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Background

• OEB responsibility for setting payments for OPGs
  prescribed assets via section 78.1 of the OEB
  Act and Regulation 53/05
• Payments for output from prescribed assets to be
  set by OEB no earlier than April 1, 2008
• Staff Discussion paper posted May 8, 2006

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Staff Discussion Paper

• Three Basic Options Described
• Cost of Service (and modified cost of service)
• Incentive Regulation (based on cost of service or
  based on existing payments)
• Regulatory Contracts
• Discussion Paper was the basis for consultations
  with stakeholders.

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Stakeholder Discussions

• Five meetings held with stakeholders Plenary
  and Small Group
• Participants included
• OPA
• Power Workers Union
• IESO
• Bruce Power
• OESC
• Direct Energy
• Constellation Energy
• Schools
• LIEN
• CME
• AMPCO
• Energy Probe
• HydroOne

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Views Expressed at Stakeholder Meetings

• Rate of return (views range from commercial rate
  to zero, based on heritage asset definition)
• Need for transparency in reviewing OPGs costs
  and revenues
• Need for regulatory model to facilitate
  competition
• The prescribed assets are not to be paid market
  prices
• Review of all COS information in one proceeding
  will be onerous needs to be done thoroughly,
  even if this is over several proceedings
• Efficiency of OPG needs to be addressed
• As a crown corporation, incentive regulation may
  not be effective for OPG

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Staff Recommended Model

• Incentive Regulation is the basic model. Use
  existing base payments as the starting point
• Increase payments by input cost factor minus
  productivity factor TBD in first proceeding
• Examine efficiency benefits of retaining/changing
  daily threshold for hydraulic production and Beck
  P.S. receiving different payments
• Board staff to commission study of input cost and
  productivity factors

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Staff Recommended Model

• OPG to file cost and financial information on a
  quarterly basis,(guidelines TBD), segmented by
  nuclear and hydraulic assets, to
• Inform analysis of input cost and productivity
  factors in first proceeding
• Create accounting structure to be regulated
  (allocation, capital structure and level of
  detail)
• Other issues to be examined in first proceeding
  payment structure, Z factors and Off Ramps,
  SQIs
• Term to be determined based on annual review of
  actual financial information
• Future issue to be reviewed ROE

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Benefits of this Approach

• More efficient regulatory proceeding compared to
  CoS more transparent than Regulatory Contracts
• Consistent with policy and legislative framework
  for OPGs prescribed assets
• Ratepayer benefits productivity factors
• Ongoing information disclosure
• Potential for efficiency incentives IR formula
  threshold and Beck P.S.

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Next Steps

• Post Draft 2 on website week of June 19th
• Final Discussion Paper June 30th
• Submissions from Interested Parties July 18th
• Replies from Interested Parties (OPG, others)
  July 27th