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Independent Assessment Team

Independent Assessment Team. Agenda. Introduction & some history Power Purchase Arrangements & Trading Independent Assessment Team - the PPA Requirements PPAs, -”the deal”, how do they work, & the process PPAs, some key provisions & schedules Process.

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Independent Assessment Team

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  1. Independent Assessment Team

  2. Agenda • Introduction & some history • Power Purchase Arrangements & Trading • Independent Assessment Team - the PPA Requirements • PPAs, -”the deal”, how do they work, & the process • PPAs, some key provisions & schedules • Process

  3. The Independent Assessment Team - Outline • Ministerial appointment under the Electric Utilities Act (1998) • Role: implement generation deregulation & restructuring process in EUA • Primary functions defined by the EUA : • (1) assessment and determination of the Power Purchase Arrangements, • (2) auction design & rules for PPAs

  4. History • Islanded operations • One system planning/AIS • Electric Energy Marketing Act (EEMA) • Electric Utilities Act - effective 1996 • EUA Amendments - 1998

  5. Generation restructuring • 1996 • Open market for generation facilities • Legislated hedges introduced for regulated units • All energy traded through power pool • 1998 - 2001 • Independent Assessment Team to create Power Purchase Arrangements • Legislated hedges to be eliminated • Balancing pool to capture residual value by sale of PPAs • Bilateral contracts to be introduced

  6. Power Purchase Arrangements - Outline • REQUIRED: for all regulated electric generating units in Alberta • TERM: earlier of 2020 or end of (extended) base life • EFFECT: sale of (all) production to PPA buyer - owner operates for a “regulated” price set by PPA. • PRIMARY OBJECTIVES: • capture perceived “residual value” of regulated generating units, over the PPA term, for consumers • address the “market power” issue by introducing more players

  7. Power Pool Trading Arrangement - Present EP TAU APL Other Supply Power Pool TA APL EP TAU Cities Customers

  8. Power Pool Trading Arrangement - 2001 APL EP TAU PPAs Marketers Other Supply Power Pool TA Retailers Customers Wire Service Provider Wire Owner

  9. The Role of the IAT • Address the market power issue • … efficient market • … fair & open competition • … pricing & investment … guided by competitive market forces • Optimise the net amount paid to the balancing pool • … sharing among consumers … benefits & costs (of regulated generation) • Determine the “commercial” arrangement - Owners/Buyers • replace the “legislated hedge” with power purchase arrangements

  10. IAT PPA Requirements • review and assess reasonableness of Owners proposals • assess reasonableness of PPA formulae • assess reasonableness of submissions of interested parties • consult with interested parties re reasonableness of above • cont’d...

  11. IAT PPA requirements... • Determine a just and reasonable PPA that.. • …provides Owner with fixed and variable cost recovery • …fixes just, reasonable…debt equity ratios • …provides risk commensurate rate of return on equity • …provides owner with efficiency incentives • …establishes...terms that address dispatch…maintenance…SSS, capability…performance…and penalties • ...provides owner with…incentives for future investment • …includes decommissioning terms & conditions

  12. PPAs - here is “the deal” • Owners get “regulated” fixed and variable costs - they are “kept whole” • Buyers compete, by auction, for right to acquire and market regulated production capacity of Alberta generation system • Customers capture net present “residual” value of regulated generation Alberta through auction proceeds paid to the Balancing Pool

  13. So… how does it work? • …for example… • existing regulated capacity costs are, say, $25/Mwh • new greenfield capacity would cost , say, $35/Mwh • net auction proceeds result in balancing pool getting, say, $8 • …then • buyer pays owner $25, balancing pool $8 ($33) • buyer sells production through Power Pool for $35 • buyer keeps $2 for his margin • customer gets $8 back through Balancing Pool • new entrant would sell production through Power Pool at $35 • market clears at fair competitive marginal price

  14. Power Purchase Arrangements - Key Provisions • Supply of Electricity and System Support Services • Payment for Committed Capacity & Price for Electricity • Operation & Maintenance Requirements • Term of PPA • Measurement • Payment • Operating Practice & Characteristics

  15. Power Purchase Arrangements - Key Schedules • Plant description • Capacity & Operating Characteristics • Capacity Payments • Monthly energy payments • Excess energy & Increased Capacity • System Support Services • Dispatch Obligations & Protocols

  16. Market Power Market Power ? Divest? PPAs Sold? No Yes Yes Yes No No PPAs Widely Held? Financial Instruments Yes No “No Problem”

  17. IAT - the PPA Process Auction Design Assess & Determine IAT Recommend EUB Minister Appeal? No Yes Approve PPAs Auction Process Yes or No Vary?

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