Prudential Review (SE-88)
IESO Response to Stakeholder Comments
Responses to Stakeholders’ Comments on SE-88: Prudential Review
Based on the content of the responses received, the IESO does not intend to present the 2010 Prudential
Review report to the upcoming Stakeholder Advisory Committee meeting in August 2010, and will
instead proceed to present directly to the IESO’s Board of Directors in September 2010.
Tembec
1. In general, Tembec supports the recommendation not to change the prudential framework at this
time.
2. Tembec supports the recommendation of maintaining good payment history.
3. Tembec comments that multiple programs have been introduced by other government entities (i.e.
such as Ontario Power Authority (“OPA”)) which have not been included in the actual exposure
calculation, and that these programs have their own prudential requirements, or are guaranteed by
government.
Specifically, Tembec would like to see included in the actual exposure calculation:
a) Demand Response 2 (“DR2”) revenue from OPA accounted on a weekly basis.
b) Northern Industrial Electricity Rate Program (“NIERP”) and/or Northern Pulp and Paper Electricity
Transition Program (“NPPETP”) rebates accounted on a daily basis.
c) Global Adjustment allocation reflecting future market rule changes accounted on a daily basis.
IESO Response
The IESO would like to thank Tembec for their comments.
Currently, the IESO recognizes credit amounts within actual exposure when the program (i.e. DR2,
NPPETP programs) amount has been appropriately verified and processed by IESO’s Settlement
Operations (i.e. either monthly or quarterly depending on the program).
Generally, the IESO is interested in further analyzing the various applicable programs to determine if
there is an opportunity to reflect these program amounts within actual exposure on a timelier basis.
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For DR2, the challenge lies in the fact that the IESO currently calculates DR2 amounts on a monthly
basis once the final settlement statements have been completed. Also, the IESO will have to ensure
the necessary legal arrangements are in place to ensure timelier recognition.
For NIERP amounts, given the program’s requirements, the IESO believes it would likely be possible
to reflect these amounts in actual exposure on a daily basis if all necessary legal arrangements are in
place.
For both specific programs above, the IESO commits to complete their analysis (i.e. timelier
recognition) no later than the end of 2010.
Currently, the actual exposure includes an estimated amount for Global Adjustment. While the IESO
will not reflect future market rule changes within the actual exposure for obvious reasons, any
change in the allocation of the Global Adjustment would require a review of, and likely change in,
the manner in which the Global Adjustment is estimated within actual exposure.
Electricity Distributors Association (“EDA”)
1. In general, EDA has no comments on maintaining status quo with respect to the current prudential
requirements.
2. The EDA comment that the tightening of credit spreads does not necessarily translate into reduced
costs, and therefore the assertion made in the report that the cost of providing prudential support
during 2010 is trending downward is not appropriate.
IESO Response
The IESO would like to thank EDA for their comments.
The IESO recognizes that for some Market Participants (MP), their liquidity / credit lines may have been
negotiated at a fixed rate and for a pre-determined long-term length of time and therefore they may not
have seen pricing reductions over the last year nor may they have been negatively impacted from the
higher cost of credit seen during 2008 and 2009. Overall, the IESO’s credit spread analysis focused only
on the short term variable rates as a general basis for determining the trend / impact in credit rates over
the past three years for most companies. For those MPs which negotiate their credit / liquidity lines on
an annual basis (or short-term basis), these MPs would likely be able to capitalize on the lower credit
rates in the short-term as credit spreads have begun to tighten from those seen in 2008 and 2009.
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