Setting Payment Amounts for Output of OPGs Prescribed Assets: The Regulated Contract for Differences

1
Setting Payment Amounts for Output of OPGs
Prescribed Assets The Regulated Contract for
Differences Concept

• IESO Presentation to OEB
• September 15, 2006

2
Overview

• Key Elements of Proposal
• Determining Output Quantities/Prices
• Additional investments by OPG
• Variance and Deferral accounts
• Type/detail of filing information
• Issues for first proceeding

3
Key Elements

• Regulated Contract For Difference (CfD)
• A regulatory construct whereby, ratepayers are
  provided a guaranteed price for a prescribed
  amount of their consumption and OPG is assured of
  receiving this price if it produces the output.
• OPG manages the risk of not producing the
  prescribed output and is rewarded (a payment at
  real-time prices) for producing more.
• Provides an incentive mechanism for the efficient
  use of the assets
• The role of regulatory hearing is to determine
  the prescribed price and prescribed quantity to
  balance public policy goals
• IESO suggests that Regulated CfD achieves stated
  objectives with lowest regulatory burden relative
  to other approaches

4
Key Elements

• Proposal is presented at a conceptual level
• Consistent with OPGs agreement with its
  shareholder further incents operation of
  generating assets as efficiently and
  cost-effectively as possible
• If concept deemed to have merit, details to be
  fleshed out through regulatory process

5
Determining Output Quantities/Prices

• Prescribed quantities set according to Boards
  weighting of policy objectives
• Higher percentage more ratepayer price
  stability, greater degree of mitigation of
  potential market power
• However, higher percentage implies greater
  financial risk to OPG in event of unplanned
  outages
• Suggestion for Nuclear
• Percentage based on combined capacities
• Percentage of capacity chosen could reflect
  historic availability factors
• Percentage factor and Force Majeure would address
  financial risk to OPG
• Suggestion for Hydro
• Set equal to the hourly minimum run of river
  level for combined facilities
• Based on historic water inflow
• Prescribed Prices
• Consistent with current regulatory arrangement
  but adjusted by input cost inflation factor
• If costs have materially changed, Board review to
  reset prices

6
Additional investments by OPG

• Additional investment cost to increase the output
  of, refurbish or add operating capacity of
  facilities could be recovered through adjustment
  in prescribed price
• investment cost apportioned over projected output
  of the facilities
• Revenue requirement for the additional
  investments determined through OEB hearing
  (perhaps a cost-of-service review)
• OPG to recover cost only if meet requirement of
  section 6(2) 3 (i) and (ii) of current regulation

7
Variance and Deferral Accounts

• Under CfD approach, if and as required, OPG may
  make application to adjust prescribed prices to
  address Variance and Deferral accounts
• Initial submission envisioned that many of the
  costs described in Section 5. (1) would be
  addressed through Force Majeure

8
Type/detail of filing information

• Input cost inflation factors
• Hydroelectric run-of-river water flow levels
  and output levels
• Historic outage rates and availability factors
• Additional information, if and as necessary, to
  support limited COS to establish appropriate
  prescribed prices

9
Issues for first proceeding

• Determination of historic outage rates and
  availability factors
• Determination of Prescribed quantities based on
  policy goals
• Determination of input cost inflation factors
• Defining Force Majeure
• Regulatory time-frame