RT-GCG Cost Recovery Framework

Technical Panel update

Pre-Approved Values and

Planned Maintenance Framework

May 31, 2016

IESOTP 297-4b

1. Stakeholder engagement update

i. IESO responses to stakeholder feedback from March 31 meeting

ii. Update from May 26 stakeholder meeting

2. Overview of proposed Market rule and Market Manual changes

i. Market Manual - Cost Information

ii. Market Manual – Supporting Processes

3. Proposed changes to Market Rules

4. Next steps

Agenda

2

3

IESO responses to stakeholder feedback

• Program should allow for recovery of actual cost or if pre-approved, there should be a ‘true-up’

• Requests for further data/details on costs

• Regular review of program

• Cap and Trade

• Process for resource-specific costs

• Other costs should be included

• Some costs currently in the framework should be removed

Stakeholder Feedback

4

• RT-GCG is not a full cost-recovery program

• Proposed framework will allow recovery of certain incremental costs eligible under program through pre-approved values informed by principles and methodology discussed at last meeting

• IESO will provide further information underpinning values

• Pre-approved values will be finalized after market rules are approved

• Proposed full program review every 3 years

• Resource-specific discussions to begin in coming weeks

Response to Feedback

5

6

Overview of changes to Market Rules and Market Manuals

In order to implement the proposed changes to the RT-GCG program, market rules and market manuals will be revised:

• Market rules specify market participant and IESO obligations – Higher level obligations

– Specifies “what” market participants/the IESO are obligated to do

• Market manuals outline the specifics of how to meet those obligations – Specifies the “how” or the details of how MPs/the IESO must

meet their obligations

7

Market Rule and Market Manual Changes

Section Market Rule Content Market Manual Content

Chapter 7

2.2B.1.4 Data submission requirements: registration data, cost data and other data

Process/timelines for data submission; Identify specific data to be submitted; Describe screening processes

2.2B.2

IESO right to audit data submissions and recover over-payments

N/A

2.2B.3 Retention requirements for documentation and data

Identify supporting documentation and data that must be retained

2.2B.4 Definition of costs that are eligible under the program

Describe cost categories

2.2B.5 IESO determination and revision of pre-approved cost values and methodologies

Process for revision of pre-approved cost values and methodologies

2.2B.6 Cost submission where pre-approved cost values and methodologies are not established

Submission process (not currently required)

Chapter 9 4.7B.5 Formula for calculating pre-approved eligible costs

Identify pre-approved values and methodology for calculating submitted values

Chapter 11 Definitions

Definition of combined guaranteed costs

Describe point of initiation for different resource types

8

Market Manual References and Content

Market Manual Content – Cost Information

• Market rule amendments in Ch. 7 section 2.2B.4; Ch. 9 section 4.7B.5; Ch. 11 will be supported by following information in the market manuals: – Cost recovery methodologies, including pre-approved universal

values, proposed description of start volume & point of initiation

– Proposed process for determining pre-approved planned maintenance values - additional detail provided in the Appendix to this presentation

Further description of cost categories in stakeholder engagement materials http://www.ieso.ca/Documents/consult/RTGCG/RTGCG-20160526-Presentation.pdf.

9

Component Measure Source/Value Potential Costs

Fuel Price $ NGX Union Dawn Day-Ahead Index price

for the gas day converted to CAD based

upon the noon hour foreign exchange rate

on the day of synchronization

~97% of the total

eligible fuel costs

Start

Volume

GJ Participant to provide based on metered

volume; IESO may audit

Included above

Compressor

Fuel

Volume

Adder

% Universal pre-approved value of 1% added

to the fuel volume for the incremental

percentage of fuel consumed by the

compressor associated with each GCG

eligible start, including volumes for injecting

or removing gas from storage

~1% of the total eligible

fuel costs

Services

Price Adder

$ Universal pre-approved value of $0.043

added to the fuel price for the additional

services costs related to the marketer risk

premium, commodity charge for

transportation and balancing and storage

~2% of the total eligible

fuel costs

Fuel Cost Recovery Methodology

10

Eligible fuel costs = (Fuel Price + Services Price Adder) * (Start Volume + (Start Volume * Compressor Fuel Volume Adder))

Example for a gas turbine submission:

($3.00 CDN + $0.043) * (3000 GJ + (3000*1%))

= $3.043 * 3030 GJ

= $9220.29

Note: this example uses a fictional price and start volume for illustrative purposes.

Fuel Cost Calculation Example

11

• Start Volume for a combined cycle facility: The volume of fuel used from the point of initiation to when MLP is reached (only for eligible RT-GCG submissions):

– Gas turbine submitting resource: only at the submitting resource gas turbine combustion burners

– Steam turbine submitting resource: duct burner fuel

– Based on 5-minute revenue data

• Point of initiation for a gas turbine resource occurs when the gas turbine rotor reaches self-sustaining speed

• Point of initiation for a steam turbine resource occurs at first fire of the steam boiler to generate steam to drive the steam turbine

• Point at which a resource reaches MLP is the ramp submission based on the actual interval of synchronization and actual interval in which the resource reaches its MLP

Proposed Start Volume & Point of Initiation

12

Component Measure Source Potential Costs

Electricity

Consumption

Price

$ Universal pre-approved value of $124.41/MWh for

the cost of electricity represented by Average

Supply Cost for RPP + Wholesale Market Services

Rate + regulatory charges (RRRP, OESP, DRC)

~2% of the total

eligible O&M costs

Electricity

Consumption

Quantity

MWh Universal pre-approved value of 1.5 MWh for the

incremental quantity of electricity consumed during

GCG eligible start-up (incremental cost of

maintaining vacuum prior to the GCG eligible start

to be added, still under development)

Included above

Operating

Consumables

Cost Adder

$ Universal pre-approved value of $63 for the

incremental cost of materials consumed during the

GCG eligible start

~0.5% of the total

eligible O&M costs

per start

Planned

Maintenance

Cost Adder

$ Resource-specific pre-approved value for the

incremental cost of planned maintenance materials

and services dependent on the GCG eligible starting

state (i.e. cold, warm, hot); IESO may audit to verify

appropriate value is applied

~97.5% of the total

eligible O&M costs

per start

O&M Cost Recovery Methodology

13

Eligible O&M costs = (Electricity Consumption Price * Electricity Consumption Quantity) + Operating Consumables Cost Adder + Planned Maintenance Cost Adder

Example for a combined cycle 1x1 start:

GT submission = ($124.41 * 1.5 MWh) + $63 + planned maintenance

= $249.62 + facility-specific planned maintenance

ST submission = ($124.41 * 1.5 MWh) + planned maintenance

= $186.62 + facility-specific planned maintenance

Note: this example does not include proxy for maintaining vacuum which is under development.

O&M Cost Calculation Example

14

1. IESO will issue request for information on planned maintenance costs for each facility to the registered representative – Form will specify information requirements (see appendix) – Evidence to support information in the form will also be

required (e.g. CSA/LTSA*, invoices, etc.) * Contractual Services Agreement/Long Term Services Agreement

2. The IESO, technical consultants and the facility representative will discuss the information and proposed resource-specific values

3. Once determined, the IESO will provide formal confirmation of the facility’s pre-approved values to the participant

Proposed Process for Determining Planned Maintenance Values

15

Market Manual Content - Supporting Processes

Market rule amendments in sections of Chapter 7 will be supported by the following information in market manuals:

• section 2.2B.1.4 – Method of cost submission

– Spot check/screening process

– Data requirements

• section 2.2B.3: – Retention of data

• section 2.2B.5: – Review/revision of pre-approved values - additional detail

provided in the Appendix to this presentation

16

• Participants will continue to make RT-GCG submission through an on-line form within the timelines specified in the existing IESO Real-Time Generation Cost Guarantee Payment Calendar

• Participants will continue to submit RT-GCG claims on a ‘resource’ basis as defined in Market Manual 1.2 (IESO registration system terminology, section 2.4.1) and GCG form 1552

• IESO will automate the new claim submission form as much as possible

Method of Cost Submission

17

IESO will identify submitted values (non pre-approved) that require further scrutiny:

• If a submitted value is outside of a reasonable tolerance for variations in that amount, the cost submission will not be processed by way of a preliminary settlement statement until it can be verified

• The cost submission will be reviewed by the IESO and evidence to support the amount may be requested

• The IESO may adjust the amount to be paid if its review determines an adjustment is warranted

Spot Check Process

18

• Data, such as operational and revenue meter fuel consumption, will be required to support cost submissions

• Participants are required to retain data for audit purposes for a period of 7 years from when cost is incurred

• IESO may audit values that are not pre-approved, for example for natural gas fueled facilities, including: – Fuel start volumes

– Start condition (e.g. cold, warm, hot) of a facility to confirm appropriate planned maintenance pre-approved value is applied

Data requirements for Audit

19

• IESO will complete a review of the program every 3 years including a review of all universal and resource-specific pre-approved values

• An earlier review of a pre-approved value may be completed at the IESO’s discretion if, for example, there is a material change in the underlying costs or a new cost is proposed for recovery

• To review a universal pre-approved value, the IESO will require historical cost data and supporting evidence similar to the requested data during this engagement

• Participants are required to retain data supporting pre-approved values for 7 years from when the cost is paid

Data requirements for Program Review

20

21

Changes to Proposed Market Rules

Market Rule - 2.2B.2

• The proposed market rules were introduced at the April 26 Technical Panel meeting

• Some Panel members expressed concern that the draft audit provision would allow the IESO to reduce GCG payments even where they are based on pre-approved cost values

• Revised wording clarifies that the IESO will not retroactively revise or audit pre-approved cost values, provided that, in relation to the data submitted, the participant is compliant with Chapter 1, sections 10A.1 and 11.2.1

22

Market Rule - 2.2B.2

• The reference to Chapter 1, section 11.2.1 notifies participants that if a pre-approved cost value is discovered by the IESO to be based upon untrue, incorrect, incomplete, misleading or deceptive data provided by a participant, then the IESO may review and/or seek recovery of the associated GCG payment made to that participant

23

Market Rule - 2.2B.2

• The reference to Chapter 1, section 10A.1 (General Conduct Rule) notifies participants that if a GCG payment is discovered by the IESO to be part of a scheme that breaches the General Conduct Rule, then the IESO may review and/or seek recovery of all components of that participant’s associated GCG payment including any pre-approved cost values

24

Market Rule - 2.2B.1.4C

• Some Panel members expressed concern that the draft rule language is too broad, particularly with respect to the words “any other data” and “contractual counter-party” – The challenge is that the IESO needs access to sufficient data in

support of the facility’s costs in order to prudently assess and pre-approve eligible costs

– For both internal and external audit purposes, the IESO needs to maintain a thorough and complete record of all the information considered when establishing pre-approved values for eligible costs

25

Market Rule - 2.2B.1.4C • Revised wording clarifies that the IESO’s requests will

be limited to data relevant for the purpose of enabling the IESO to determine eligible costs

• Further, the data requested from the participant is expected to be obtainable through best efforts

• The type of data (e.g. CSA/LTSA) will be further specified in the related market manual to the extent possible, for greater certainty

26

27

Next Steps

• Stakeholder engagement initiative:

– IESO will begin arranging one-on-one meetings to discuss resource-specific values in the coming weeks

– Next stakeholder meeting TBC pending feedback and outcome of one-on-one meetings

• Technical Panel

– Seek vote from TP to post draft market rules for stakeholder comment

Next Steps

28

29

Appendix – Proposed Planned Maintenance Description, Supporting Documentation and Review Process For information only

• The costs assessed should include: – costs that would be avoided if the resource did not start – planned maintenance activities from the time of the review up to

and including the next planned ‘major’ inspection (major inspection following the hot gas path inspection for a gas turbine and after the minor inspection for a steam turbine)

– if the next planned major inspection is less than 3 years from the time of the review, the costs used after the planned major inspection should be the same as before until a review is triggered and a new value provided

– the work scope and period over which the work scope is to be completed will be defined by the facility’s CSA or the original equipment manufacturer’s recommendations for the gas turbine island and steam turbine island

Proposed Pre-approved Planned Maintenance Values

30

• Information required for a Combined Cycle Gas Turbine may include: – Generation facility information including the model, capacity,

start-up times under different start conditions (i.e. cold, warm, hot)

– Inspection intervals and number of inspections per planned maintenance cycle for each type of planned maintenance (i.e. combustion inspection, hot gas path inspection, major inspection)

– Key CSA information such as the anticipated payment structure for CSA/LTSA, variable fees, ratio of fire factored hours to factored starts

– Supporting documentation for above information

Proposed Pre-approved Planned Maintenance Values

31

• Information required for a Combined Cycle Steam Turbine may include: – Generation facility information including the model, capacity,

start-up times under different start conditions (i.e. cold, warm, hot)

– Minor and major inspection intervals (equivalent operating hours)

– Weighting factors and calculated equivalent operating hours per start under different start conditions

– Supporting documentation for above information

Proposed Pre-approved Planned Maintenance Values

32

• Incremental costs during a Combined Cycle Gas Turbine planned maintenance outage may include: – CSA/LTSA milestone payments – replacement in-kind /refurbishment of parts required for the

planned maintenance outage for the gas turbine and gas turbine generator, if applicable

– consumables – technical advisors, incremental labour – crane rentals, temporary infrastructure – cost of permits, cost of utilities – waste disposal costs – additional items with sufficient justification may be considered

Proposed Pre-approved Planned Maintenance Values

33

• Incremental costs for Generation Facility Maintenance Consumables (Balance of Plant Maintenance) may include: – boiler feed water pumps – bypass systems and/or sky vents – Heat Recovery Steam Generator (HRSG) components - limited – condenser cooling water pumps – fuel gas booster compressor, where applicable – auxiliary boilers – miscellaneous maintenance consumables (nuts, bolts, gaskets,

etc.) – additional items with sufficient justification may be considered

Proposed Pre-approved Planned Maintenance Values

34

Examples of information required to assess or review pre-approved values:

• Contracts: fuel contracts or CSA/LTSA effective during the period including any amendments

• Operational data: 5 minute interval fuel operational meter consumption aligned with 5 minute electrical revenue data reconciled to hourly gas provider data in GJ

• OEM documentation, operational data, counter information and narratives detailing the cold, warm and hot start-ups for the steam turbine and various HRSG configurations

Review of Pre-approved Values

35

Examples of information required to assess or review pre-approved values, continued:

• Invoices and supporting data for operating and maintenance costs (e.g. CSA/LTSA invoices, resource specific water consumption, gas consumption, chemical consumption, lubricant consumption, etc.)

• Narratives explaining how costs related to submissions may have changed in quantum and methodology over the review period

• 3rd party outage reports related to the generation facility

• Data needed to calculate station service and consumables costs

Review of Pre-approved Values

36