Draft 2 – Staff Discussion Paper
“Regulatory Options for Setting Payments for
the Output from OPG’s Prescribed Assets”
Presentation to Interested Parties
June 16, 2006
Background
• OEB responsibility for setting payments
for OPG’s “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
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.
Stakeholder Discussions
• Five meetings held with stakeholders – Plenary and
Small Group
• Participants included:
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OPA
Power Workers Union
IESO
Bruce Power
OESC
Direct Energy
Constellation Energy
Schools
LIEN
CME
AMPCO
Energy Probe
HydroOne
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 OPG’s 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
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
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
Benefits of this Approach
• More efficient regulatory proceeding
compared to CoS; more transparent than
Regulatory Contracts
• Consistent with policy and legislative
framework for OPG’s prescribed assets
• Ratepayer benefits – productivity factors
• Ongoing information disclosure
• Potential for efficiency incentives – IR
formula; threshold and Beck P.S.
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