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June 4, 2012

June 4, 2012. Current and Future Components of Global Adjustment Centre for Urban Energy Ryerson University – Discussion Panel Series 2012 Amir Shalaby. Outline. Generation and conservation contracts drive global adjustment What is included in Global Adjustment Mechanism (GAM)?

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June 4, 2012

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  1. June 4, 2012 Current and Future Components of Global Adjustment Centre for Urban Energy Ryerson University – Discussion Panel Series 2012 Amir Shalaby

  2. Outline • Generation and conservation contracts drive global adjustment • What is included in Global Adjustment Mechanism (GAM)? • How is GAM collected from customers • Outlook for the cost of generation and conservation and GAM • Some ideas for consideration

  3. Conservation and generation contracts drive Global Adjustment • Electricity Generation (i.e. electricity production) • Electricity Conservation • Transmission Delivery System • Distribution Delivery System • Wholesale Market Services • Debt Retirement Charges 2010 Actuals

  4. GAM + market revenues pay the contracted or regulated amounts OPA Generation Contracts (i.e., Bruce, FIT, RES, CES) Cost Recovery Mechanisms: OEFC Generation Contracts (i.e., NUGs and OPG Coal Contingency Contract) • Conservation Costs • OPA Conservation • OEB approved LDC conservation Market Revenues @HOEP GAM OPG Regulated Rates (i.e., OPG Nuclear and base load Hydro) Market Generation (i.e., not contracted and non-regulated) • Market revenues are earned in the IESO-administered markets (e.g. spot market/Hourly Ontario Energy Price) • The Global Adjustment Mechanism (“GAM”) is used to recover costs not recovered through Market Revenues

  5. GAM tops up market revenues for contracted or regulated generation and conservation OPA Generation Contracts (i.e., Bruce, FIT, RES, CES) OEFC Generation Contracts (i.e., NUGs and OPG Coal Contingency Contract) Market Revenues @HOEP • Conservation Costs • OPA Conservation • OEB approved LDC conservation GAM OPG Regulated Rates (i.e., OPG Nuclear and base load Hydro) Market revenues will cover cost of market generation; therefore this isn’t part of GAM Market Generation (i.e., not contracted and non-regulated) • The Global Adjustment Mechanism (“GAM”) is the settlement difference (+ or -) of the OPA and OEFC contracts and OPG regulated rates + conservation costs. • Market generation is completely paid for by market revenues

  6. About 84% of total supply is supported by GAM: here is the List • OPA Contracts (generation is base load, intermediate and peaking supply) • Bruce Power A and B - RES contracts • HESA (Hydro Energy Supply Agreement) -HCI (Hydro Contract Incentive) • CES and CHP contracts • (deemed dispatch and natural gas related) • Standard Offer - Lennox • RESOP • CESOP • FIT/Micro-FIT • OEFC contracts • NUG contracts • OPG Coal Contingency Support Payments • OPG Regulated Rates (generation is base load) • Nuclear (Prescribed Assets) • Pickering and Darlington • OPG Base load Hydro (Prescribed Assets) • De Cew I, De Cew II, Sir Adam Beck I, Sir Adam Beck II, Sir Adam Beck pumped generating station and R.H. Saunders

  7. Share of Market Revenues is declining over time. Share of Global Adjustment is increasing Source: IESO • As the Market Price (i.e., HOEP) declines, the share of costs recovered through GAM increases 7

  8. Components of Monthly GAM: OEFC, OPG and OPA Source: IESO

  9. Components of Monthly GAM by Energy Source Source: Market Surveillance Report

  10. GAM and production by fuel type for facilities contracted by OPA (2011) Conservation Bio & Hydro Solar Wind Natural Gas Nuclear Source: OPA

  11. How GAM is collected from customers • Prior to January 1, 2011 – GAM was a uniform volumetric rate (total monthly cost divided by domestic demand) • Applicable to all customers (no difference in customer Class) • After January 1, 2011 – GAM cost divided between Class A and Class B customers • Class A (demand greater than 5 MW) pay GAM based on their use during five highest peak demand hours in “base period” • Class B (=< 5MW) pay the remaining GAM cost on a volumetric rate basis Schedule of when the GAM High 5 is determined for Class A customers (i.e., Base Period) and Adjustment Period, is when the determined shares are applied to GAM costs. Appendix: Cost Recovery

  12. GAM Monthly Cost Share by Customer Class (A or B) Class A Share 11% Class A Share 10% Source: IESO • Pre – 2011 all customers shared the GAM costs on a volumetric basis • Post – 2011, Class A cost share of GAM has been about 11% and 10% with about 16% of energy usage. • Class B share of GAM is the remainder not recovered from Class A, which is about 91% to 90% of costs from 84% of the energy • The cost share will be re-established on July 1, 2012, associated with the May 1, 2011 to April 30, 2012 base period

  13. Average Unit Cost of GAM for Class A is less than Class B customer Post January 1, 2011 Source: IESO and Market Surveillance Report • Post Jan 1, 2011, Class A on average pay a lower GAM rate then Class B • Class A pay GAM based on individual’s usage of highest 5 hours; therefore, Class A rate is an average unit rate not applicable to any one customer.

  14. GAM and Market Revenue Share – depends on HOEP • HOEP will result in GAM. Conversely, HOEP will result in GAM • HOEP projected trajectory to 2015 is likely to be downward from 2011. • HOEP is impacted by: • demand levels • fuel costs (i.e., natural gas) • changing supply mix • regional trade (i.e., exports) • 2015 Outlook is produced for two HOEP scenarios: • $15/MWh, and • $25/MWh

  15. Outlook for generation and conservation costs by 2015 Source: OPA

  16. Outlook of GAM Components by Fuel Type Source: OPA

  17. 2015 Outlook of GAM Component and Production Levels by Fuel Type @ $15/MWh Conservation Bio Solar Wind Hydro Natural Gas Nuclear Source: OPA

  18. 2015 Outlook of GAM Component and Production Levels by Fuel Type @ $25/MWh Conservation Bio Solar Wind Hydro Natural Gas Nuclear Source: OPA

  19. 2015 Outlook of Average Unit Cost of GAM for Customer Class (A or B) Source: OPA • Outlook for Class A and Class B GAM costs, are based on the historical cost shares of 10% and 90% and volume shares of 17% and 83%, respectively • Unit GAM rate for Class B is about two times greater then the Class A GAM rate

  20. What is working and what can be improved about GAM?

  21. Some ideas • Recognize GAM allocation as rate design exercise: apply rate design principles • Communicate that price of generation is real time market plus GAM • Inform/protect retail customers

  22. Q & A

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