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Oral Presentation Sessions September 15, 2006

This paper discusses the proposal for OPG payment system, including incentive regulations, asset assessments, and staff recommendations for sustainable financial integrity. The staff recommends quarterly financial data filing and consider efficiency incentives for hydroelectric and nuclear assets. The decision process involved multiple staff departments and input from interested parties. The methodology aims to balance consumer concerns while ensuring revenue adequacy for asset maintenance and return on equity.

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Oral Presentation Sessions September 15, 2006

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  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.

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