Setting Payment Amounts for Output of
OPG’s Prescribed Assets: The Regulated
Contract for Differences Concept
IESO Presentation to OEB
September 15, 2006
Overview
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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
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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
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Key Elements
• Proposal is presented at a conceptual level
• Consistent with OPG’s agreement with its
shareholder: further incents operation of
“generating assets as efficiently and costeffectively as possible”
• If concept deemed to have merit, details to be
fleshed out through regulatory process
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Determining Output Quantities/Prices
• Prescribed quantities set according to Board’s 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
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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
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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
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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
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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
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