Oral Presentation Sessions September 15, 2006

1. Setting Payments for Output from OPG’s Prescribed Generation AssetsOEB Staff Discussion Paper Overview Oral Presentation Sessions September 15, 2006

2. Staff Recommendations • Incentive Regulation (IR): current payments as initial base payment with input cost and productivity factors determined in first Board proceeding. • Board to establish filing guidelines developed in consultation and set an OPG accounting/reporting framework in a Board hearing. Staff recommends quarterly filing of OPG’s financial and cost data. • Board to use OPG data to: - set future adjustments to initial payments and establish future input cost and productivity factors; - analyze capital structure and ROE issues; and, - assess financial impact of variance and deferral accounts.

3. Staff Recommendations - continued • Hydroelectric assets: assess the 1900 MWh output limit and different treatment of Beck P.S. as efficiency incentives • Nuclear assets: efficiency and service incentives that may use payment structures (“sculpted” payments) and SQIs • Initial cost input factor based on statistical indices (GDPPI) and productivity factor based on Board-commissioned study • Board examine need for “Z” factors and “off ramps” for unanticipated events outside OPG’s control • Initial order in effect for minimum of one year but actual duration set after Board determines suitability of continuing initial payment levels based on OPG data filings

4. Staff Recommendations – How Determined? • Assessed proposed models against Board objectives, provisions in Regulation 53/05 and regulatory criteria • Other considerations: price stability/volatility; mitigation of OPG’s market power; maintain OPG’s financial integrity; opportunities to improve OPG’s operating efficiencies and cost containment • Input from interested parties formed part of the internal discussion framework • Staff from RPD, Market Operations and Legal engaged in discussion and debate

5. Board Staff Decision Process • Compliance with legislation and regulations was mandatory. • Methodology must provide an opportunity to balance consumer concerns about price, reliability and long-term supply adequacy. • Payments should provide revenues sufficient to cover operating costs, maintain assets, and a return on equity – current payments were assumed to be adequate for now. • Methodology must provide the opportunity to adjust payments if need is demonstrated. • Methodology should allow for opportunities to encourage efficient operation of all OPG assets.