ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-001 (a)-(c)
Page 1 of 3
Preamble:
IPPSA questions the need for the AESO’s application, or at least an application
of the nature filed by the AESO, given the recency and continued applicability of
the Board’s Decision 2002-103 and given the MSA Report: TMR Investigation,
February 28, 2005 (“MSA Report on TMR”).
In IPPSA’s view, only section 23 of the Transmission Regulation is “new” since
Decision 2002-103. It does warrant consideration by the Board for possible
amendment to Article 24, but does not suggest any change in approach is
required or even advisable for the AESO to deal with occasions of its so called
“extended duration TMR.”
In IPPSA’s view a tariff approach to “extended duration TMR” is contrary to
Decision 2002-103, the MSA Report on TMR and the legislators’ intent to not
regulate power generation.
Request:
(a)
Please comment on the degree to which the AESO agrees or disagrees with the
Preamble and why.
(b)
Assuming the Board were to agree with IPPSA’s Preamble above, does the
AESO agree that a negotiated solution to the remaining issue is achievable? The
only outstanding issue, in IPPSA’s view, is: “What methodology should be
described in the ISO tariff pursuant to s.23 of the Transmission Regulation?”
(c)
Please explain how the AESO’s application, if approved, would not result in the
AESO setting electricity prices for “extended duration TMR”, or result in the
Board regulating electricity pricing via the AESO tariff.
Response:
(a)
The AESO fundamentally disagrees with IPPSA’s position that the present
application is not needed.
The AESO has filed its application to achieve two objectives. The first is to
ensure that the AESO’s tariff remains at all times just and reasonable and
properly addresses all circumstances for which the tariff applies. The second
objective is to ensure that the AESO’s tariff includes a compensation
methodology for transmission must run services that comports with the
requirements of section 23 of the Transmission Regulation and that this
methodology receives final approval by the EUB.
IPPSA’s Preamble refers to Decision 2002-103. The AESO notes that the
present application arises due to circumstances that have been encountered
following the issuance of this Decision. Recent circumstances have caused the
Page 2 of 3
AESO to conscript transmission must run services for extended durations. While
Decision 2002-103 suggests that it would not likely be necessary for the AESO’s
then predecessor to conscript for extended periods of time1, the AESO’s actual
experience has differed from this expectation. This has been due to the inability
of parties to reach agreement over the terms that should govern the provision of
this service in the future.
Further, regardless of short or long term duration issues, in circumstances where
limited options exist in obtaining the required services, Article 24 can create
perverse incentives. In non-competitive procurement processes, Article 24 has
operated to provide a compensation benchmark by which future services are
determined regardless of changes in market conditions. The inappropriate
benchmark established by Article 24 must now be remedied through the appliedfor amendments so as to ensure the AESO’s tariff remains just and reasonable.
New government policy has also been issued since Decision 2002-103 and
which discusses, among other matters, principles that should govern how
compensation for conscripted transmission must run services should be
determined. The Framework Paper presented by the Alberta Department of
Energy, in June 6, 2005 and subsequent to Decision 2002-103 discusses these
principles. Those principles refer to how conscripted transmission must run
payments should be fair and based upon cost of service principles, should be
simple and transparent, and should minimize interference in the energy market.
In the AESO’s view, the proposed amendments achieve these objectives.
The Preamble to this question also refers to a Report provided by the Market
Surveillance Administrator as support for the proposition that the applied-for
amendments are not needed. With respect, the AESO disagrees. The focus of
the MSA’s Report concerns the need for the AESO to establish and follow
competitive processes when procuring transmission must run services and
minimize conscriptions and the use of tariff-based compensation. The AESO
does not interpret the MSA Report to suggest that the compensation
methodology found in the existing Article 24 must continue. A tariff approach
continues to be needed such that a workable means is available to maintain
reliability in non-contestable situations or if competitive processes prove to be
unsuccessful. The AESO continues to believe that the potential for noncontestable circumstances remains real, that a regulated approach is therefore
required, and that the changes as applied-for to the compensation methodology
are required to ensure the tariff remains just and reasonable.
The Preamble also seems to imply the AESO’s applied-for changes are intended
to prevent the market from operating properly. Quite the opposite is in fact the
case. The proposed amendments are requested so as to minimize interference
in the energy market and ensure compensation remains fair and just regardless
of the duration in which the conscription occurs.
With these amendments the AESO anticipates that it will continue to be able to
resource its ancillary service requirements through bilateral arrangements and
remains committed to, as best possible, obtain its AS requirements through an
open and efficient marketplace for such services. However where circumstances
do not permit such outcomes, then the applied-for amendments will ensure the
2
Page 3 of 3
AESO can obtain the necessary services and compensate for same on a fair and
reasonable basis. That basis, applies both to short and long term duration AS
requirements.
(b)
The AESO cannot agree with the premise to this question, namely that the Board
finds there is no merit with the present Application. If that were the case, the
AESO would have expected the Board to have summarily dismissed the
Application long before now, particularly given the previous submissions made by
ATCO and IPPSA in respect of this position.
With respect to the need for a negotiated solution, the AESO agrees that
negotiated solutions are preferable to litigated outcomes. In this case however,
the AESO and others have attempted as best possible to resolve differences
through a variety of negotiated options but to no avail. Given the passage of time
since the original application was filed, the AESO believes that the most efficient
process ahead is to pursue a litigated course following the existing hearing
schedule. During this time the AESO will continue to consult with stakeholders
on the merits of the Application and hopefully address outstanding concerns as
best possible. In this way, the AESO is hopeful that need for an extensive
hearing proceeding will be limited.
(c)
The AESO application would result in a regulated tariff as an option for extended
duration TMR services. The tariff would only be used if competitive processes
and negotiations were unsuccessful and conscription of services was required to
maintain reliability of the transmission network.
3
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-002
Reference:
August 4, 2005 Revised Application, pp. 3-4
Preamble:
The Application states:
Page 1 of 1
… This application is based on the assumption that the contract documents will be
completed satisfactorily and therefore some issues raised in previous applications
no longer need to be addressed by the Board.
There has been a significant amount of information filed on the AS Article during the
above mentioned process. In order to better assist parties, this filing provides a
consolidated view of all relevant information filed by the AESO since the August 16
Application, including amendments of some of the proposed changes included in the
August 16 Application. Accordingly, this filing includes restatements of material
previously filed, new material not previously placed on the record, and
appendices, which include complete documents as previously filed. (Emphases
added)
Request:
Please confirm that this amended re-filing supersedes and replaces all information
provided in previous episodes of this application, with the effect that such prior
information has been retracted or withdrawn? If not, please clarify what specific
information from previous applications the AESO has retracted or withdrawn, if any, and
what information parties and the Board should regard as still the AESO’s evidence.
Response:
Please refer to BR.AESO-001.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-003 (a)-(c)
Reference:
Page 1 of 1
August 4, 2005 Revised Application, p. 6
Preamble:
The Application states:
Outcomes of previous EUB proceedings have established the current Ancillary
Services Article (AS Article) of the AESO’s Terms and Conditions of Service and
allowed the AESO, and its predecessor the Transmission Administrator (TA), to
carry out its responsibilities with respect to AS in the context of circumstances
that existed at the time. These proceedings form a unique history and are
summarized by the EUB in Decision 2002-103. [emphasis added]
Request:
(a)
(b)
(c)
What new circumstances exist that the AESO believes were not contemplated by
the Board during the process culminating in Decision 2002-103?
Does the AESO consider any aspects of Decision 2002-103 no longer
appropriate for current circumstances? If so, please explain fully.
To the extent not covered by responses to (a) and (b) above, please identify any
“circumstances” which are now irrelevant or superseded by new “circumstances”.
Please identify the new “circumstances”.
Response:
(a) & (b) Please refer to IPPSA.AESO-001(a).
(c)
Given the policy directions for Alberta contained in the regulation and papers
noted in (a) above, reliance on the AESO’s experience in negotiating contracts
as the basis for structuring an AS Article has diminished as a consideration. That
experience was considered in development of Option 2 or the Going Forward
Cost option presented in the 2004 Application. Also, the relevance of the FERC
directions on TMR have diminished as a consideration. The Going Forward Cost
Option was also in line with the FERC direction. As such the Going Forward Cost
option is now not the recommended option.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-004 (a)-(g)
Reference:
August 4, 2005 Revised Application, p. 6
Preamble:
The Application states:
Page 1 of 2
In its experience with the current AS Article, the AESO has generally been able
to manage situations of short-term emergency service. The current AS
Article was not, however, intended to address situations of foreseeable longduration services, and more specifically extended-duration transmission mustrun (TMR) services. Instances of extended-duration TMR services have
occurred. AESO and the supplier have recently agreed to compensation for the
specific circumstance. Compensation for such long-duration service remains
a concern. The AESO therefore proposes that the current AS Article be
amended to address concerns related to long-duration services, especially TMR,
as well as refinements to support these provisions and to remove elements that
potentially inhibit energy market efficiency. (emphases added)
Request:
(a)
Please describe what the AESO means by “situations of short-term emergency
service”. Is the AESO speaking exclusively of non-contracted situations? Please
explain and provide a list of such circumstances.
(b)
Please describe what the AESO means by “foreseeable long-duration services”
and explain the characteristics that distinguish a long-duration service from a
short-term service. Is the AESO speaking exclusively of non-contracted
situations? Please explain.
(c)
Please describe all instances of extended-duration TMR services that have
occurred since January 2002.
(d)
Please explain in what way compensation for extended-duration service remains
a concern. Does this concern extend to all instances of services under contract,
including IBOC contracts, LBC SO contracts and the Calgary Area TMR RFP
(awarded March 24, 2005) contracts. Please explain.
(e)
Why does the AESO believe that managing “extended-duration TMR services” by
the processes outlined in the MSA’s Report on TMR is insufficient?
(f)
Please describe when the proposed Article 11 would be used for extended
duration TMR and when it would not be used. Explain the extent to which the
proposed Article 11 would influence whether the AESO bypasses some or all of
the processes in the MSA Report.
Page 2 of 2
(g)
Does the AESO see any merit in having two distinct schemes in Article 11, one
for pricing shorter duration TMR and the other for pricing extended duration
TMR?
Response:
(a)
Short-term emergency service would normally be situations where services are
required from a generator to maintain system reliability for a period of hours,
days or possibly weeks and the required services have not been contracted for.
Please see FIRM.AESO-020 for a listing of Ancillary Services. Other aspects of
emergency circumstances may include loss of transmission elements,
unexpected load patterns or unexpected generation patterns.
(b)
Foreseeable long-duration services differ from short-term in that such services
may cover a few upcoming months or years. Such situations would be expected
to require addition or replacement of a new transmission element with an
extended time before the element would be operational. The needed services
would be uncontracted. Conscription of uncontracted generators would be
foreseeable.
(c)
Please refer to FIRM.AESO-037.
(d)
AESO is committed to avoid extended term conscriptions as much as possible
but due to long-lead times for transmission projects and continued load growth it
is realistic to expect extended term conscriptions will be required and therefore
addressed in the AESO’s tariff. The concern does not extend to services under
contracts. One situation where requirements materialize is if transmission
facilities are not completed prior to expiration of contracts.
(e)
Please refer to IPPSA.AESO-001(a).
(f)
The conditions under which Article 11 would be used are described in Article
11.1. Processes described BR.AESO-003(b) would be followed. The proposed
Article 11 is not a means to bypass contestable processes. The proposed Article
11 will provide a known and certain backstop for non-contestable situations.
(g)
No. The structure of Article 11 in Option 3 is appropriate for short and extended
duration conscriptions. Separate schemes would add complexity compared to a
single approach, and are not considered to be necessary.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-005
Page 1 of 1
Reference:
August 4, 2005 Revised Application, p. 6
Preamble:
The Application states:
The ADOE issued the findings of its wholesale market review in a policy paper
titled “Alberta’s Electricity Policy Framework: Competitive – Reliable –
Sustainable”, on June 6, 2005. Section 4.4.2 of the policy paper addressed TMR
services and included overarching principles for the TMR process as well as
requiring the AESO to create processes, practices, and rules to address several
aspects of TMR services.
Request:
Please file a copy of the ADOE’s Electricity Policy Framework document.
Response:
Please refer to BR.AESO-002 (a).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-006 (a)-(b)
Reference:
August 4, 2005 Revised Application, p. 8
Preamble:
The Application recites the ADOE principle:
Page 1 of 1
Principle 7. The ISO must act as a rational buyer of TMR services with the
Market Surveillance Administrator’s (MSA) oversight regarding competitive
procurement. [emphasis added]
Request:
(a)
(b)
Response:
(a)
(b)
Please file a copy of the AESO’s Ancillary Services Procurement Process,
Version 1, June 17, 2005 and any subsequent version. Please explain the reason
for this document(s).
Please provide the AESO’s definition and understanding of a “rational buyer”.
Please refer to BR.AESO-003(a).
A rational buyer is someone who procures needed products or services at
reasonable prices using appropriate procurement processes. AESO has a duty to
procure Ancillary Services at costs which are reasonable and prudent. AESO’s
intent is to develop and follow open, competitive procurement processes, where
possible, which treat all competitors equally and fairly. Use of such processes
would be in line with Principle 7 and achieve competitive prices for
compensation.
It is not possible to use competitive processes in all cases. In some cases it is
necessary to conscript services to meet reliability requirements. In such cases,
AESO has proposed a reasonable compensation proposal based on pro-rating
costs among joint uses.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-007
Reference:
August 4, 2005 Revised Application, p. 8
Preamble:
The Application states:
Page 1 of 1
Principle 9. Fidelity of Pool price is important and TMR rules and practices should
preserve price fidelity and minimize any undue interference in the energy market.
and
The ADOE’s principles relating to TMR compensation as listed first above include
and elaborate on the principles which the AESO included in the August 16
Application.
…
Minimizing market interference (principle 9) was discussed in paragraphs 9 and
14, specifically in the context of avoiding extra TMR compensation which could
incent generators to submit high prices or withdraw supplies from the energy
market.
Request:
If the AESO was concerned that a candidate for conscription was changing its
offers in order to gain unwarranted TMR compensation, explain why submitting
the concern to the MSA for investigation and adjudication is insufficient.
Response:
The current application remedies the issue by removing the incentive. The
application also addresses other concerns as discussed in pages 11 and 12 of
the Amendment Application.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-008 (a)-(d)
Reference:
August 4, 2005 Revised Application, p. 8
Preamble:
The Application states:
Page 1 of 2
The remaining principles (2, 3, 4, and 7) relate to processes for acquiring TMR services,
as follows:
2.
The need for TMR services should be identified as early as possible and defined
as broadly as possible to maximize available alternatives.
3.
Competitive processes should be used to the extent possible (and practical) and
processes should be designed to maximize available alternatives.
4.
In non-contestable situations, the process and next steps for acquiring TMR must
be transparent.
7.
The ISO must act as a rational buyer of TMR services with the Market
Surveillance Administrator’s (MSA) oversight regarding competitive
procurement.
AESO is proceeding with establishing processes aligned with the latter principles.
[emphasis added]
Request:
(a)
Is the AESO in full agreement with the above noted principles? If not, explain
why and specifically how the AESO intends to, or may have to, deviate from the
principles.
(b)
Please describe precisely what the AESO has done to date to implement the
process in the MSA Report, what it plans to do and when in respect of each of
the above noted principles.
(c)
Subsequent to the August 16, 2004 application the MSA released the MSA
Report on TMR. As part of the report, Charles River provided an assessment of
TMR procurement in Alberta. Please explain the extent to which the MSA Report
or the Charles River Study influenced the August 4, 2005 revised filing.
(d)
Please file a copy of the MSA Report, including the Charles River Study.
Response:
(a)
(b)
Yes.
Please refer to BR.AESO-003 (a).
Page 2 of 2
(c)
The MSA recommendations with respect to the AESO focused mainly on
procurement processes, internal processes, and TMR need identification. Please
refer to BR.AESO-003 (a) for more information. Since none of the AESO-related
recommendations focused on compensation for conscripted services, the report
had limited influence on the 2005 Amendment Application.
(d)
The MSA report and the Charles River study are available from the MSA website
www.albertamsa.ca under the reports section.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-009 (a)-(b)
Reference:
August 4, 2005 Revised Application, p. 9
Preamble:
The Application states:
Page 1 of 1
Discussions with stakeholders together with the AESO’s experience with the
current AS Article have confirmed the appropriateness of the five TMR
compensation principles provided in the ADOE’s Electricity Policy Framework
paper. As well, discussions have supported interpreting “fair compensation” to
include avoiding overpayment for TMR services.
Request:
(a)
(b)
Please describe which stakeholders and which stakeholder discussions
confirmed the appropriateness of the five TMR compensation principles,
especially the principle to recover a prorated portion of fixed costs.
On what basis did stakeholders determine that “fair compensation” should be
assessed? On what basis does the AESO consider that “fair compensation”
should be assessed?
Response:
(a)
Specific stakeholder comments during discussions were not recorded.
(b)
The AESO’s considerations have been identified in the application. There was a
lack of consensus among stakeholders on a compensation method. The current
proceeding provides stakeholders an opportunity to put forward and argue their
positions.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-010 (a)-(c)
Page 1 of 2
Reference:
August 4, 2005 Revised Application, p. 9
Preamble:
The Application states:
Out-of-merit costs should be compensated under a separate category of costs so
that the compensation is transparent and it is clear that such costs are always
covered. Some forms of compensation do not clearly cover such out-of-merit
costs. For example, in some situations under the current AS Article 24.3(b), a
generator is paid another form of compensation (in this case a 10% premium on
pool price) but the generator must absorb out-of-merit losses. Such a “netting”
formula results in the out-of-merit losses reducing total AS compensation, in
some cases to near zero. Separately identifying compensation for out-of-merit
costs will ensure such costs are covered and will not create unfair situations
where a generator receives little compensation when providing TMR service.
Request:
(a)
Please provide a numerical scenario demonstrating how AS compensation is
reduced to near zero amounts under Article 24.3(b), as discussed in the above
noted paragraph.
(b)
For the given scenario in question (a), calculate the AS compensation under
each of the remaining pricing options under Article 24.3. Given the “higher of”
provision explain why the supplier would not receive at least its “out-of-merit”
costs under the current Article 24.3.
(c)
Is the AESO saying that in order for a compensation scheme to be acceptable it
cannot be in a form other than that of a two-part calculation; first addressing
compensation when operating costs are less than pool revenue, and second,
addressing payment for fixed costs? Please explain your response.
Response:
(a)
Please refer to IPPSA.AESO-017 (a).
(b)
Please refer to BR.AESO-004 (a) for compensation under other options and
similar circumstances. See also IPPSA.AESO-017 (a).
(c)
The ADOE’s Electricity Policy Framework paper establishes principles. The
paper does not dictate a structure for the AS Article.
A two-part calculation, where out-of-merit compensation is one of the parts,
minimizes interference in the energy market. Minimization of interference in the
energy market is a principle articulated in the ADOE’s Electricity Policy
Framework paper (principle 9). Such a structure appropriately compensates a
generator for the periods when the generator is not expected to participate in the
energy market. The structure also does not skew the market signal and market
Page 2 of 2
compensation for periods when it appears a unit could economically operate in
the energy market. The two-part calculation satisfies the principle of minimizing
market interference.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-011
Reference:
August 4, 2005 Revised Application, p. 9
Preamble:
The Application states:
Page 1 of 1
Principle 8 also requires recovery of a portion of fixed costs. Fixed costs are to be
prorated according to joint use of the generating unit (such as for providing
conscripted TMR service and operating in the energy market). In contrast, the
August 16 Amendment proposed a focus on “Going Forward Costs” which would
be incurred for operation and maintenance of the generating unit over the next 12
months.
Request:
Explain why the existing Article 24 does not already comply with principle 8.
Response:
The existing Article 24 provides for recovery of a proportion of fixed costs and
partially complies with principle 8, as stated at page 11, line 42 of the 2005
Amendment Application. The non-compliance of the existing Article 24 is
discussed on page 9 of the 2005 Amendment Application.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-012
Reference:
August 4, 2005 Revised Application, p. 9
Preamble:
The Application states:
Page 1 of 1
For a generating unit that is predominantly in-merit and economic in the energy
market, a joint use formula would allocate most fixed costs to operations in the
energy market. On the other hand, for a unit that is predominantly out-of-merit
and conscripted for TMR service, a joint use formula would allocate most fixed
costs to the TMR service. A smooth transition between the largely in-merit case
and the largely out-of-merit case is desirable to avoid poor incentives associated
with sharp or lumpy transitions. [emphasis added]
Request:
Please explain why the existing Article 24 does not satisfy this requirement.
Response:
The question is taken as referring only to a requirement for a joint-use formula
due to the emphasis added. Please see the response to IPPSA.AESO-011.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-013
Page 1 of 1
Reference:
August 4, 2005 Revised Application, p. 10
Preamble:
The Application states:
Further minimization of distortions preserves energy market signals as much as
possible. For in-merit generators, the energy market provides signals for
operation in the market. Appropriate AS Article compensation which is clearly
additional to and separate from energy market revenues is desirable in that the
in-merit generator will continue to receive the energy market signal and revenues
as well as supplemental AS compensation. AS Article options that call for inmerit energy market revenues to be substituted or forfeited as part of the
AS compensation have the effect of reducing or completely cancelling the
energy market signals. Such interruption of or interference with energy
market signals represents an undesirable distortion. [emphasis added]
Request:
Please explain how and in what situations the existing Article 24 compensation
options lead to the “substitution or forfeiting” of energy market revenue and fully
explain how this has the effect of reducing or completely cancelling the energy
market signals? Provide a numerical and graphical example.
Response:
Please refer to IPPSA.AESO-017 (a).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-014
Reference:
August 4, 2005 Revised Application, p. 10
Preamble:
The Application states:
Page 1 of 1
In Decision 2002-103, the EUB focused on short-term emergency situations and
the need to direct service and compensate service providers in such situations,
and approved the current AS Article. Since that time the AESO experienced a
requirement to procure an ancillary service over the medium to longer term, on a
conscripted basis. The service was required in the northwest region of Alberta to
ensure voltage stability and reliable electrical service for an extended period.
AESO foresees other situations may arise. In addressing the longer-term
requirement the AESO generally reviewed experience with the AS Article and
other relevant events since Decision 2002-103. [emphasis added]
Request:
Please explain the “other situations” that may arise (when, where, duration) and
explain why the AESO believes it is necessary to rely on a combination of
conscription and tariff-based compensation. Explain why the AESO believes that
it could not conduct an RFP process or enter bi-lateral negotiations and
successfully negotiate a contract for services in these potential situations.
Response:
Please refer to IPPSA.AESO-001(a), 4(a), (b) and (d).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-015 (a)-(c)
Reference:
August 4, 2005 Revised Application, p. 10
Preamble:
The Application states:
Page 1 of 2
Although the AESO is actively assessing the shortage of transmission in the
northwest region, it is the case that an expected transmission solution will take
three to five years to complete and, therefore, long duration TMR services must
be procured in the interim. There is no immediate alternative to negotiating to
procure TMR services from existing local generators, such as by initiating a
competitive process, as the existing transmission infrastructure is unable
to accommodate new generation. Information on the competitiveness of the
NW area was provided in the AESO’s January 10, 2005, additional evidence and
is included as Appendix D in this Application. [emphasis added]
Request:
(a)
Is the AESO recommending that in instances when it must deal exclusively with a
single supplier for TMR services, the terms of compensation should automatically
default to a predefined formula as contained in the tariff? Please explain your
response. Please explain the timing and role, if any, the AESO envisions for bilateral negotiations, private arbitration or Board adjudication to determine
compensation.
(b)
How frequently will the AESO publish a statement regarding the need for TMR
servicesacross the Alberta grid? When will the AESO publish the next such
statement?
(c)
If the AESO publishes a statement of need indicating that from time to time it will
be required to direct a supplier for reliability purposes, please:
(i)
explain whether the AESO will provide compensation from the date that
need is identified or only from the date that a direction of real or reactive
power occurs and then only as these occur in the future; and
(ii)
explain when and how a supplier will know that it is a candidate for
compensation.
For each, please provide a full description in the case of contestable and noncontestable situations.
Response:
(a)
AESO is recommending the AS Article, as proposed, provides a reasonable
compensation level in non-contestable circumstances. As such it forms a suitable
basis in non-contestable situations, or starting point for negotiated contracts.
AESO would also consider reasonable alternative proposals to deal with unique
circumstances, including any case where a supplier can demonstrate hardship.
Page 2 of 2
Timing and other aspects of negotiations and disputes would be addressed on a
case by case basis. Disputes under the AS Article would follow the process
outlined in Article 19 of AESO’s Terms and Conditions of Service.
(b)
The AESO will identify the need for TMR services in the context of 10 year and
20 year plans with the frequency required by the Transmission Regulation.
Where other instances of TMR need can be forecast (i.e. transmission
maintenance, construction), the AESO will conduct transparent and competitive
processes when possible.
(c)
The AESO will provide compensation from the date that conscription occurs. As
noted above, where TMR need can be forecast, the AESO will conduct
transparent and competitive processes when possible. During abnormal
conditions, TMR services may be conscripted and it may not be possible to
provide any significant advance notice to suppliers. The posting of need should
not be affected by whether the situation is contestable or non-contestable.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-016 (a)-(c)
Reference:
August 4, 2005 Revised Application, p. 11
Preamble:
The Application states:
Page 1 of 2
Undercompensation concerns arise when conditions result in compensation near
the transition point between AS Articles 24.3(b) and 24.3(c) when compared to
compensation under conditions which are not near the transition point. The
current AS Article compensates using the greater of a 10% premium on pool
price (in Article 24.3(b)) or 110% of direct costs, including a proportion of fixed
costs prorated according to directed hours and service hours, less pool revenues
(in Article 24.3(c)). When pool prices are high Article 24.3(b) provides significant
compensation compared to the energy market alone, and when pool prices are
low Article 24.3(c) provides significantly more compensation than the energy
market. However, when pool prices are moderate, both Articles provide
relatively lower levels of compensation compared to higher or lower
pool prices. Such a result is not considered fair, and is further illustrated in
Appendix C. [emphasis added]
Request:
(a)
Please confirm that the “significant compensation compared to the energy market
alone” in respect of Article 24.3(b) is equal to 10% of pool price for the period in
which conscription occurs. If not, please explain.
(b)
Please confirm that the “significant compensation compared to the energy market
alone” in respect of Article 24.3(c) is equal to the net cost-of-service including
sufficient funds to cover out-of-merit expenses (if any) and a prorated share of
fixed costs. If not, please explain.
(c)
Please explain the economic principles that dictate that TMR compensation
should be relatively constant compared to pool prices or pool revenue.
Response:
(a)
Confirmed for periods when pool prices are relatively high.
(b)
Confirmed for periods when pool prices are relatively low and with the
clarification that such net compensation is further increased by 10%.
(c)
The quoted paragraph is included under a discussion of a “fairness” principle,
which is the largest concern. Any structure which does not provide for a relatively
smooth transition to a supplier as conditions change will have fairness concerns.
Similarly structures which do not provide for relatively smooth compensation
differences among suppliers will have fairness concerns. The graph in Appendix
C of the 2005 Amendment Application illustrates the issue. If three generators
Page 2 of 2
were conscripted, one of which was out-of-merit for 25%, one at 30% and the
other out-of-merit for 35% of the time, one would expect the extra TMR
compensation to be relatively consistent. Yet under Article 24.3, the generator
which was out-of-merit for 30% would receive significantly less TMR
compensation than both of the other generators and would question the fairness
of such an outcome.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-017 (a)-(b)
Reference:
Request:
(a)
(b)
Response:
(a)
Page 1 of 1
August 4, 2005 Revised Application, Appendix C
Please describe all assumptions and calculations used in developing Appendix
C.
Provide a summary of all instances of conscription for TMR since January 2002
to the present. Include in each instance the date and length of the conscription,
the amount of capacity conscripted and the reason for the conscription.
Please see Attachment IPPSA.AESO-017, a worksheet which contains
assumptions and calculations.
At row 71 in scenario C, the out-of-merit loss is $182,000. The TMR revenue of
$203,000 barely covers the loss with little contribution to fixed costs. The TMR
revenue although sufficient to cover the OOM costs appears to be unfair in
relation to significantly larger coverage for either greater or lesser out-of-merit
operation.
(b)
Please refer to FIRM.AESO-037.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-018 (a)-(c)
Page 1 of 2
Reference:
August 4, 2005 Revised Application, p. 11
Preamble:
The Application states:
Under other circumstances the current AS Article may overcompensate a
generator providing AS services. Specifically, Article 24.3(c) prescribes 10% to
be added to compensation for fixed and variable costs. This premium results in
an overpayment above costs. Article 24.3(b) prescribes 10% to be added to pool
price and may sometimes also result in an overpayment since the premium is not
related to either fixed or variable costs.
Request:
(a)
Provide a numerical example illustrating the AESO’s concern with Article 24.3(c).
(b)
Please discuss the necessary conditions to arrive at a situation in which Article
24.3(c) compensation will be 10% above the (i) monthly fixed and variable costs
and (ii) the annual fixed and variable costs.
(c)
Explain why section 23 of the Transmission Regulation is not sufficient to
address the AESO’s concerns. Does section 23 not cap compensation to protect
against any “over compensation”?
Response:
(a)
A simple numerical example of Article 24.3 amounts follows (all values are in
$/MWh):
Case A
35
3.5
3.5
Case B
150
15
15
Case C
10
1
1
Fixed and variable costs
Fixed and variable costs less pool price
24.3(c) (Fixed and variable costs less pool price) plus 10%
Article 24.3(c) amount
60
25
27.5
60
negative
0
60
50
55
Article 24.3 Compensation - Greater of (b) or (c) above
27.5
15
55
35
150
10
Total compensation (Pool and Art 24.3)
62.5
165
65
Concern: Compensation above cost
Concern: Compensation above Energy Market
2.5
Pool Price
24.3(b) 10% of Pool Price
Article 24.3(b) amount
Energy Market Compensation (Pool Revenue)
5
15
Page 2 of 2
Cases A and C illustrate the concern regarding payments above costs
($2.5/MWh and $5/MWh) under Article 24.3(c). Case B illustrates the second
concern as the $15 extra payment under Article 24.3(b) is not related to costs.
(b)
The 10% adder contained in Article 24.3(c) means that in most conditions the
compensation will exceed fixed and variable costs. A 10% increase to fixed and
variable costs occurs under very low pool prices similar to that shown in case C
above.
(c)
Section 23 of the Transmission Regulation does partially address the
overcompensation concern by establishing a ceiling. The ceiling as proposed has
not been set at a level which would be considered reasonable for most
conscription situations. Reliance only on the ceiling with no further changes
would also not address other concerns noted at pages 11 and 12 of the 2005
Amendment Application. Please also see the response to IPPSA.AESO-015 (a).
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-019
Reference:
August 4, 2005 Revised Application, p. 11
Preamble:
The Application states:
Page 1 of 1
The current AS Article will not always satisfy the cost recovery principle, either.
Where compensation is determined as a 10% premium on pool price, it is not
related to either variable or fixed costs and is not aligned with the cost recovery
principle.
Request:
Is it the AESO’s position that the ADOE’s Policy Framework document dictates
that the method used to compensate for TMR services can only be in the form of
a two-part calculation, separately addressing variable and fixed costs. Please
coordinate this response with the response to IPPSA.AESO-010 (c).
Response:
Please refer to IPPSA.AESO-010 (c).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-020
Reference:
August 4, 2005 Revised Application, p. 11
Preamble:
The Application states:
Page 1 of 1
There is also no compensation for out-of-merit costs paid under current AS
Article 24.3(b). The 10% premium on pool price generally prevails when pool
prices are relatively high, which indicates that units will have substantial in-merit
operation. However, even though pool prices are relatively high, directed out-ofmerit operation is likely. Since there is no out-of-merit compensation under
24.3(b), the generator must net off out-of-merit losses against compensation from
the energy market or ancillary services. A more desirable approach is to ensure
all out-of-merit costs are compensated so that a generator is always kept whole,
at a minimum, when out-of-merit operation is directed.
Request:
Provide a numerical example where a supplier suffers losses under Article
24.3(b) compensation. Explain why the “higher of” provision of the current Article
24 would not ensure that at least out of merit costs are covered.
Response:
Please refer to the response provided in IPPSA.AESO-017 (a).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-021 (a)-(e)
Reference:
Preamble:
Page 1 of 2
August 4, 2005 Revised Application, p. 14
The Application states:
Fixed cost compensation is based on a pro-rating of fixed costs between the two
uses of the unit, namely, in-merit energy market service and the conscripted
ancillary service. The portion of fixed costs assigned to energy market
service is based on in-merit hours. The portion assigned to directed service
is based on out-of-merit directed service hours. By basing the energy market
share on in-merit hours, the generator is not discouraged from operating during
such in-merit periods to capture and retain as much revenue from the energy
market as possible, and the incentive to operate during in-merit periods is
common to all generators. If a generator is unable to capture in-merit hours
due to limitations of the generating unit (for example, start-up times), the
number of in-merit hours will be reasonably adjusted to reflect the physical
characteristics of the generating unit and its ability to capture revenues
from in-merit hours. Such adjustment would be determined on a case-by-case
basis after examining the particular circumstances of each case. (emphases
added)
Request:
(a)
Using example A, B and C from Appendix E of the revised application, provide an
illustrative numerical example comparing the approach to prorating fixed costs
from Option 3 to the existing Article 24.
(b)
Please describe how “in-merit” and “out-of-merit” hours will be determined in
Option 3 and compare this to the manner they are determined under the existing
Article 24.
(c)
Who will be responsible for adjusting in-merit hours associated with
compensation under Option 3?
(d)
Are adjustments of in-merit hours restricted to the physical characteristics of the
generator? If not, indicate the other reasons the AESO would agree to adjusting
“in-merit hours”. To undertake this adjustment, will the AESO require access to
confidential offer strategies of market participants in order to fairly assess the
amount of in-merit hours? Please explain.
(e)
If there is a dispute over the quantum of the AESO’s determination of “in-merit
hours”, how will it be resolved?
Page 2 of 2
Response:
(a)
Please refer to BR.AESO-004 (a). The examples do not use the same values as
Appendix E but the fixed cost compensation values would simply be increased or
decreased linearly for different assumed levels of fixed cost.
(b)
In Option 3, in-merit and out-of-merit are established by comparing the
Benchmark price to the pool price. The existing Article 24 does not contain an inmerit/out-of-merit distinction. The current Article 24 prorates according to service
hours which are determined by the customers offer prices.
(c)
Please refer to FIRM.AESO-024 (i).
(d)
Adjustments are restricted to those pertaining to physical characteristics of the
unit. Access to confidential offer strategies of market participants will not be
required.
(e)
Disputes will be addressed in accordance with Article 19 of AESO’s Terms and
Conditions of Service.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-022
Page 1 of 1
Reference:
August 4, 2005 Revised Application, p. 13
Preamble:
The Application states:
This option [Option 3] is designed to encourage participation in the energy
market. The generator is not disincented from its expected operation during inmerit periods and receives pool price from the market for such operation. The
generator retains all in-merit revenue from in-merit energy production.
Request:
Given the AESO’s role as the buyer of TMR services, please explain why there is
not a conflict of interest in proposing a tariff for medium and long-term application
that intends to disqualify the operating decisions determined by the owner, and to
include only the operating hours as qualified by the buyer.
Response:
The AESO does not see a conflict of interest arising regarding its purchases of
TMR services. AESO procures or in some cases conscripts required supplies
solely for the purpose of meeting reliability requirements. The AESO’s duties
regarding reliable operation of the transmission system are mandated [EUA
Section 17(h)].
The AESO is not disqualifying the operating decisions of an owner. The AESO
only directs operation of capacity required for reliability purposes. The generation
owner retains decision making ability for all capacity not directed for reliability
purposes.
The AESO compensates suppliers according to contracts or provides reasonable
compensation to suppliers in the case of conscriptions.
The AESO has attempted to consider the interests of various stakeholders in
developing the tariff proposed. The AESO, as an independent and not-for-profit
entity denies that its proposals are biased towards or away from any particular
interest.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-023
Reference:
August 4, 2005 Revised Application, p. 14
Preamble:
The Application states:
Page 1 of 1
This option [Option 3] compensates for fixed costs rather than Going Forward
Costs as in Option 2. Such compensation for fixed costs aligns more directly with
the type of compensation called for in the Transmission Regulation and in the
Electricity Policy Framework paper. The determination of fixed costs will be
made following the principles proposed for Maximum TMR Compensation
in the AESO’s 2006 GTA and as required by Section 23 of the Transmission
Regulation, modified such that the pro-rating will be according to the
Directed Out-of-Merit ratio as detailed in Appendix A rather than the joint
use formula proposed for Maximum TMR Compensation. [emphasis added]
Request:
Please confirm that the methods for calculating compensation under Option 3
and the Maximum TMR Compensation are identical except for the formula that
allocates fixed costs. If not, explain all the differences.
Response:
Confirmed.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-024 (a)-(d)
Reference:
August 4, 2005 Revised Application, p. 15
Preamble:
The Application states:
Page 1 of 1
Under extended duration conscriptions, a generator’s aggregate compensation
from the energy market and TMR appears to be generally comparable under
Options 1 and 3. Aggregate compensation under Options 1 and 3 for short-term
conscriptions may differ according to the specific short-term circumstances.
Request:
(a)
Provide numerical examples for a high-efficiency thermal generator
showing how extended duration (at least 1 year in duration) TMR
compensation compares between Option 1 and Option 3. Assume the
conscription is for 100% of plant capacity under the following types of
situations:
(i)
a high frequency TMR dispatches,
(ii)
a medium frequency of TMR dispatch,
(iii)
a low frequency of TMR dispatch.
(Provide results in an Excel spreadsheet with graphical summary.)
(b)
Please re-answer question (a), assuming instead the conscription is for
50% of the plant capacity.
(c)
Please re-answer questions (a) and (b), for a low-efficiency thermal
generator.
If the generator’s compensation under Option 3 is comparable to the
compensation associated with the existing Article 24, why is there a need
to amend the tariff?
(d)
Response:
(a) – (c)
(d)
Please refer to BR.AESO-004 (a).
Please refer to pages 11 and 12 of the 2005 Amendment Application.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-025 (a)-(d)
Reference:
August 4, 2005 Revised Application, p. 17
Preamble:
The Application states:
Page 1 of 2
In the definition of “Maximum TMR Compensation” as filed January 31, 2005, the
prorating of item (f) total return costs and item (i) credits for common costs were
not included. The prorating of each cost was discussed later in section 6.4.
The corrected item (f) and (i) are as follows:
(f) a prorated share of total return costs reflecting one-twelfth of the sum of:
…
where the prorated share is based on the number of hours of TMR service
compared to the total of hours of TMR service and a reasonable portion of hours
in-merit in the energy market;
(i) a prorated share of credits for common costs, if applicable, reflecting revenues
or benefits attributable to a service in addition to the TMR service and associated
with the generating asset where the prorated share is based on the number of
hours of TMR service compared to the total of hours of TMR service and a
reasonable portion of hours in-merit in the energy market; and
Request:
(a)
Please explain how the prorate method proposed for the requirements of section
23 of the Transmission Regulation compares with the prorate method used in the
existing Article 24. Provide illustrative numerical examples.\
(b)
Please explain who will undertake to adjust the portion of “in-merit” hours and for
what reasons this adjustment take place. Are the reasons for adjustment different
than that used to adjust the proposed Article 24 compensation? If so explain.
(c)
Please provide a definition of “in-merit hours” as it is proposed to be used for the
Maximum TMR Compensation.
(d)
Please explain why Maximum TMR Compensation is not based on a calculation
of annual costs rather than monthly costs, particularly in the context of extendeduse TMR?
Response:
(a)
The prorate method for the TMR Maximum is for the purposes of setting a
maximum as a reference to which actual TMR compensation under contracts or
conscription can be tested. The intent of a cap or ceiling is to indicate the upper
end of a reasonable range. Differing TMR contracts may call for TMR
compensation across all periods, including periods where a unit may be in-merit.
The Maximum has been proposed to include in-merit hours where TMR service
Page 2 of 2
is provided to permit a reasonably wide range of contracting arrangements and
TMR payment schemes.
The AS Article establishes a reasonable compensation amount to be paid when
conscription occurs. The intent is to set a compensation level which is within a
reasonable range, not at the top or the bottom. The AS Article prorating
determines the use for TMR and the energy market and prorates according to the
use. Any in-merit operation is considered to be for the energy market use and
therefore the AS Article prorating does not include in-merit hours. For examples,
please refer to BR.AESO-004(a).
(b)
Please refer to FIRM.AESO-024(i). The reasons for any adjustment for purposes
of TMR Maximum calculations are the same as for Article 11 conscripted
operation calculations.
(c)
The same definition is proposed as is proposed in Article 11.3 calculations, that
being the relationship of the pool price to the benchmark price.
(d)
Please refer to IPCAA.AESO-002(d).
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-026 (a)-(b)
Page 1 of 1
Reference:
August 4, 2005 Revised Application, p. 18
Preamble:
The Application states:
A generator’s in-merit pool revenues would not be considered as compensation
for TMR service and therefore would not impact TMR maximum compliance
calculations. In other words, revenues received by a generator for in-merit energy
production would be retained by the generator, as they would have been if the
generator had simply operated in the energy market and not provided any TMR
service. [emphasis added]
Request:
(a)
(b)
Response:
(a)
(b)
Please define “in-merit pool revenue”.
Please confirm that in the AESO’s view pool revenue received by the supplier for
producing actual energy – whether as a result of a TMR dispatch or the voluntary
discretion of the supplier – is to be excluded from the consideration of
compensation for purposes of defining the maximum compensation for TMR. If
not, please explain.
In-merit pool revenue is equal to the pool price multiplied by energy generated by
a unit for an hour where the Pool price is greater than the Benchmark price.
Confirmed. Pool in-merit revenue would not be considered as TMR
compensation as per the preamble. As stated in the paragraph following the
preamble, pool revenue related to out-of-merit TMR service would be considered
as part of TMR compensation.
During a period where a unit is out-of-merit, a generator would not be expected to
participate in the energy market. Therefore the energy generated in an out-ofmerit period in compliance with a TMR directive is considered to be solely for
purposes of TMR. The TMR revenue and the pool revenue are therefore both
considered as being associated with the TMR purpose and to as compensation
to cover costs associated with TMR.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-027 (a)-(c)
Reference:
August 4, 2005 Revised Application, p. 18
Preamble:
The Application states:
Page 1 of 1
Pool revenues related to out-of-merit TMR service would be considered as part
of TMR compensation. Such out-of-merit pool revenues would be included with
other forms of TMR compensation and the aggregate of such compensation
would be limited by the maximum TMR compensation level. Pool revenues for
out-of-merit TMR service would be included as part of TMR compensation
because the unit would not normally be expected to operate when out-of-merit.
[emphasis added]
Request:
(a)
Please define “out-of-merit pool revenue”.
(b)
Please confirm that in the AESO’s view power pool revenue received by the
supplier for producing actual energy during “out-of-merit” conditions will be
classified as TMR compensation. If not, please explain.
(c)
Please explain how and why this recommendation is consistent with section 23 of
the Transmission Regulation.
Response:
(a)
Out-of-merit pool revenue is equal to the pool price multiplied by energy
generated by a unit in compliance with a TMR directive for an hour where the
Pool price is less than the Benchmark price.
(b)
Confirmed.
(c)
Please refer to IPPSA.AESO-026 (b).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-028
Reference:
August 4, 2005 Revised Application, p. 18
Preamble:
The Application states:
Page 1 of 1
In addition, one extra line has been added to the revised attachment to
Information Response BR.AESO-042. The extra line (line 55) represents the
Maximum Fixed and Indirect Costs. The amount is referenced for fixed costs in
the recommended Option 3 for Article 11 compensation. (emphases added)
Request:
Please define “Maximum Fixed and Indirect Costs” and explain how these costs
are to be calculated.
Response:
Option 3 compensates for a pro-rated share of Average Monthly Fixed Costs as
described in Appendix A of the Amendment Application. Article 11.3(b)II refers to
Average Monthly Fixed Costs and on page 2 of Appendix A Average Monthly
Fixed Costs are defined. The determination of Average Monthly Fixed Costs
(before prorating) is calculated in the same manner as fixed costs are determined
for purposes of the TMR Maximum. In Schedule E, the extra line titled Maximum
Fixed and Indirect Compensation before Prorating is shown and is the intended
reference to be used for Average Monthly Fixed Costs in Article 11.3(b)II.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-029 (a)-(d)
Reference:
August 4, 2005 Revised Application, Appendix A, p. 1
Preamble:
The proposed Article 11.3 (a) states:
Page 1 of 2
The product of the MW hour directed and the highest price paid in the hour to
Customers providing the same Ancillary Service pursuant to Article 11.2 provided
the service was not a TMR service and that the Existing Contract was the result
of a competitive process conducted in the prior 12 months; or [emphasis
added]
Request:
(a)
Please define “a competitive process” and explain the limitations, if any, to the
validity of such a process for the purposes of this proposed Article.
(b)
Please define the term “conducted” and explain the specific part of a “competitive
process” that cannot be more than 12 months in the past – the beginning of the
process, the conclusion or the contract execution if this occurs afterwards.
Please identify the typical time required to conduct a competitive process from
identification of the need to the signing of contracts.
(c)
Please explain why the Existing Contract which is used for reference purposes
must arise from a competitive process “conducted” less than 12 months prior.
Are there acceptable methods to adjust competitive prices over periods longer
than 12 months? Please explain.
(d)
Why are TMR Services precluded from availing themselves of compensation on
the basis of competitive contracts for the same service.
Response:
(a)
(b)
A competitive process is a procedure or method of procuring a service where a
reasonable number of suppliers, each of whom is credible and qualified to
provide the service, actively vie for the right to supply the service. The process
may be invalid if too few credible and qualified suppliers participate or if one
supplier has an obvious advantage over all of the others which limits competition.
As noted in response to BR.AESO-003 (a), the AESO intends to develop process
and criteria for determining if specific circumstances result in a situation that is
either contestable or non-contestable.
For purposes of the AS Article, the AESO proposes to begin the 12 month time
period on the contract execution date. Certain AS competitive processes are
conducted daily (operating reserves), other can take as long as 6 months or even
more.
Page 2 of 2
(c)
The 12 month limitation is proposed to avoid reference to and use of “stale”
prices which do not reflect current market conditions. No adjustment mechanisms
are available.
(d)
TMR services are location specific and prices in one location are not reflective of
prices in other locations.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-030 (a)-(c)
Reference:
August 4, 2005 Revised Application, Appendix A, p. 1
Preamble:
The proposed Article 11.3 (b) states:
Page 1 of 1
For thermal units, the sum of the following:
Request:
(a)
I.
An out-of-merit payment, when Pool Price is less than the Benchmark
Price; (Benchmark Price minus Pool Price) multiplied by the energy
generated (MWh) in compliance with the directive; plus
II.
A capacity payment equal to Average Monthly Fixed costs multiplied by
Directed Out-of-Merit Ratio as defined below. [emphasis added]
Please define “thermal units”.
(b)
Please explain how the AESO proposes to compensate non-thermal units that
are conscripted for TMR dispatch.
(c)
Please summarize the method for compensation in algebraic form and contrast it
to an algebraic summary of the compensation method in the existing Article
24.3(c). Please explain all assumptions and define all terms as they apply to
each method.
Response:
(a)
The term “Thermal unit” in Article 11 refers to any unit using natural gas, coal,
diesel or other petroleum as fuel for electricity generation. Hydro or wind units
would be excluded.
(b)
Hydro units are expected to be compensated under Article 11.3(c). Conscription
of wind units has not been contemplated.
(c)
Please refer to BR.AESO-004 (a).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-031 (a)-(b)
Reference:
August 4, 2005 Revised Application, Appendix A, p. 1
Preamble:
The proposed Article 11.3 (c) states:
Page 1 of 1
The verifiable net opportunity cost related to foregone electricity sales incurred
by the Customer to supply the directed Ancillary Services taking into account all
offsetting revenues from any source, such as pool energy receipts. [emphasis
added]
Request:
(a)
(b)
Response:
(a)
(b)
Please define ”electricity sales”.
Please explain why the AESO intends to restrict the nature of opportunity costs
and provide examples of the types of opportunity costs the AESO would consider
unacceptable.
Electricity is defined in the Electric Utilities Act. Electricity sales are exchanges of
electricity for an agreed price and would involve delivery of electricity to the
Power Pool or to a customer.
Please refer to BR.AESO-005 (c) and PWX.AESO-009 (b).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-032 (a)-(d)
Page 1 of 1
Reference:
August 4, 2005 Revised Application, Appendix A, p. 2
Preamble:
The proposed Article 11.3 (c) states:
Benchmark Price ($/MWh) equals (Heat Rate multiplied by Fuel Cost) plus
Variable STS Charges plus Variable O&M Proxy.
Request:
(a)
Why is a Benchmark Price required? What is its purpose?
(b)
Why is the Benchmark Price based strictly on variable operating costs (i.e. shortrun marginal costs)?
(c)
Why is the Benchmark Price not set based on the supplier’s offer price?
(d)
Please provide the entire basis for setting the Variable O&M to a constant $/MWh
amount and the entire basis for setting it specifically to $4/MWh.
Response:
(a)
The benchmark price is used to compensate for variable operating and fuel costs
and do so in a way which does not require significant disclosure of operating cost
information by a customer and recognizes the market value of the natural gas
used as a fuel source.
(b)
The focus of the Benchmark price is direct operating costs which is typically the
variable portion of operating costs. Such costs do not require prorating. Indirect
and fixed fuel, operating and maintenance costs require prorating and are
therefore included with “Average Monthly Fixed Cost”.
(c)
The supplier’s offer price may not be based on costs or it may be based on
recovery of fixed costs which are compensated for separately. Use of a supplier’s
offer price would not be based on a cost of service approach and would not be
considered reasonable compensation for conscripted service.
(d)
The variable O&M amount of $4.00/MWh was based on recent analysis by
BowArk and evidence of the ancillary services group (ASG) in the process
leading to EUB Decision 2002-103. A report by BowArk was attached to AESO's
submission on November 2, 2004 shows a variable cost of $4.41/MWh in the first
year. ASG Exhibit 233 submitted on April 2, 2002 included a variable cost of
$2.78/MWh.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-033 (a)-(d)
Reference:
August 4, 2005 Revised Application, Appendix A, p. 2
Preamble:
The proposed Article 11.3 (c) states:
Page 1 of 2
Average Monthly Fixed Cost is equal to the maximum amount of TMR
compensation as defined for purposes of Section 23 of the Transmission
Regulation, before prorating for joint use, and less the variable portion of such
costs, a portion of all of which may be included in the Benchmark Price.
Request:
(a)
Please summarize the referenced clause in algebraic form, providing full
definitions for all variables used and assumptions as necessary.
(b)
Using the above summary, clarify how the Average Monthly Fixed Costs are
adjusted when a plant is dispatched at less than full capacity.
(c)
Please provide the AESO’s rationale for prorating the Average Monthly Fixed
Costs. If the AESO intends to prorate the costs using dispatch levels that are
below the minimum operating levels for a given plant, provide the entire basis for
this approach.
(d)
Does the AESO intend to adjust the “variable portion of such costs” to reflect less
efficient operation of a plant operating at minimum dispatch levels? Please
explain.
Response:
(a)
The line numbers in the following refer to the examples in corrected Schedule E
as found in Attachment IPCAA.AESO-012.
Firstly, the starting point would be TMR Maximum Compensation before
prorating for joint use, before prorating for partial use and including the variable
portion of costs or:
TMR Monthly Return Costs (line 32a);
plus Direct O&M costs (line 35);
plus Indirect or Fixed O&M costs (line 36);
plus Direct Fuel costs (line 42);
plus Indirect or Fixed Fuel costs (line 43);
less: Credit for Common costs (line 49.
Secondly, Variable costs would be subtracted from the above amount:
Less: Direct O&M costs – (line 35);
Less: Direct Fuel Costs – (line 42).
Thirdly, the partial-use adjustment would be made to each of:
Page 2 of 2
TMR Monthly Return Costs (line 32a);
Indirect or Fixed O&M costs (line 36);
Indirect or Fixed Fuel costs (line 43);
and
Credit for Common costs (line 49).
The adjustment would be made using the partial use ratio shown at lines 33, 39,
46 and 52.
The Average Monthly Fixed Cost would therefore equal the sum of:
TMR Monthly Return costs after partial use adjustment
Indirect of Fixed O&M costs after partial use adjustment
Indirect or Fixed Fuel costs after partial use adjustment
Less: Credit for Common Costs after partial use adjustment.
The amount is shown at line 55.
Direct O&M costs and Direct Fuel costs are typically variable costs which are
incurred only and entirely for the TMR service. Recovery for such variable costs
would be expected to occur through Benchmark Price compensation.
(b)
The partial use adjustment is illustrated at lines 33 & 34, 39 & 40, 46 & 47 and 52
& 53 of Example C of Attachment IPCAA.AESO-012.
In Example C,
the average maximum MCR of the unit is 50MW (line 5)
the average MW directed for TMR is 30 MW (line 6).
The ratio of Average MW directed to the average Maximum MCR is 30/50
or 0.6 or 60%. This ratio is used at lines 33, 39, 46 and 52. The return
amounts, fixed or indirect costs and the Credit for common costs are all
adjusted by the ratio.
(c)
The rational for prorating the costs is to reflect the usage of the unit for Ancillary
Services. The unit remains available for use by the customer in the energy or
other markets. AESO dispatches units to their minimum operating level or
greater.
(d)
The Benchmark price reflects the “actual heat rate of the unit during the period
when the unit was complying with the directive”. If a unit is directed to an
inefficient operating level, the heat rate at the directed level will already be
reflected so further adjustment is unnecessary.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-034 (a)-(c)
Page 1 of 1
Reference:
August 4, 2005 Revised Application, Appendix B – Maximum TMR
Compensation.
Preamble:
The AESO has revised Section 6.4 of the 2006 GTA filed January 31, 2005 to
reflect the prorating method for total return costs and credits for common costs.
Request:
(a)
Are the revisions to the AESO’s application for maximum TMR compensation
limited strictly to the addition of the noted prorating methods? Please identify any
other revisions.
(b)
For continuity, please file all Information Responses from the 2006 GTA that
pertain to the Maximum TMR Compensation issue.
(c)
Please confirm that common costs including general and administrative costs
would normally be a charge against a particular plant and should be included in
the amounts to be prorated.
Response:
(a)
(b)
At the time of filing, the only revision was to the prorating as discussed at page
17 of the Amendment Application.
In the response to IPPSA.AESO-036(b) a subsequent revision is proposed to
recognize Customer and Unit specific capital structure and financial parameters.
The following Information Responses from the 2006 GTA pertain to Maximum
TMR Compensation and are attached as Att.IPPSA.AESO-034 – Attachment A:
AP.AESO-001 to 006
BR.AESO-042
FIRM.AESO-244
IPPSA.AESO-001 to 016
TCE.AESO-219 and TCE.AESO-245(a).
Please note that the spreadsheet attached to BR.AESO-042 in the 2006 GTA
has been revised and is attached to IPCAA.AESO-012.
(c)
Not confirmed. Only fixed costs and operating and maintenance costs associated
with the specific generating unit would be included. Please refer to Appendix B
page 3, line 41.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-035
Reference:
Page 1 of 1
August 4, 2005 Revised Application, Appendix E – Revised Schedule BR.AESO042 from 2006 GTA
Preamble:
Request:
Please confirm that under the proposed Maximum TMR Compensation method,
fuel costs are to be based on actual costs. If yes, explain why fuel costs in
Appendix E are prorated similar to fixed costs.
Response:
Yes, fuel costs are to be based on actual costs. Direct fuel costs or those
incurred only and entirely for TMR service are not prorated. Indirect or fixed fuel
costs will be prorated as such costs are incurred to provide other services as well
as TMR services.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-036 (a)-(b)
Reference:
2006 GTA Application, Information Response AP-AESO-005
Preamble:
In AP-AESO-005 (a), the AESO stated:
Page 1 of 1
AESO’s preference would be to use the customer’s capital structure for the
specific conscripted generating unit in the cost of service calculation. However
information on capital structure for a customer is normally not available for an
individual generating unit. Such information is normally reported for a business at
a consolidated or aggregated level. The specific generating unit would be a
relatively small portion of the business. Absent specific customer information on
capital structure, AESO proposes to base the capital structure on a typical IPP as
per the ASG evidence. AESO understood the ASG evidence to be based on a
typical capital structure for an IPP. Such an approach of using industry reference
information is consistent with a cost of service concept where specific unit
information is unavailable.
Request:
(a)
(b)
For purposes of the Transmission Regulation (section 23) requirements, is the
AESO opposed to using the customer specific information for determining the
capital structure if it is available? If yes, explain why.
If the AESO is not opposed to using customer specific information in (a) above,
please provide an amended version of the definition for Maximum TMR
compensation in order to accommodate the use of customer specific information,
including information on the capital structure.
Response:
(a) AESO is not opposed to using customer information which is unit specific. To avoid
provision of selective information, AESO proposes to use customer specific
information only when all required information can be provided.
(b) To accommodate the use of customer information, AESO proposes to add a new
paragraph (k) under “Maximum TMR Compensation” in Appendix B as follows:
“(k) in the event a customer provides actual and verifiable information for the
generating unit for all of the parameters required in paragraphs (c), (d) and
(e) above (capital structure, rate of return on equity, interest rate on debt,
other financing costs and income tax costs) such actual information will be
used instead of the deemed values in paragraphs (c), (d) and (e) above.”
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-037
Reference:
2006 GTA Application, Information Response IPPSA-AESO-013
Preamble:
In IPPSA.AESO-013 (a), the AESO stated:
Page 1 of 1
See TCE.AESO-219(a). If the owner is asked to make all of the reactive
capability of the unit available for dynamic VAR production, then no adjustment
for partial dispatch would be made.
Request:
Please provide an amended version of the partial dispatch clause to reflect the
response to IPPSA.AESO-013(a).
Response:
The response noted above was not clear. Under AESO rules, generators are
required to make VAR capacity available as a requirement of interconnection.
AESO does not provide compensation for use of the required VAR capacity.
Compensation of AS under the AS Article, including the partial use adjustment,
are not affected by directives for VAR production. As such no amendments to the
AS Article are required.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-038
Reference:
2006 GTA Application, Information Response IPPSA-AESO-015
Preamble:
The response to IPPSA-AESO-015 states:
Page 1 of 1
Costs of the independent third party performing the verification of Customer’s
costs will be to the account of the AESO. AESO expects the Customer to
cooperate with the third party and provide, at the Customer’s cost, information
reasonably required to verify the Customer’s information.
Request:
Please file an amendment to the proposed Article 11 and the Maximum TMR
Compensation calculation method to reflect the response to IPPSA-AESO-015.
Response:
AESO proposes to add the following as Article 11.5:
Information and calculations provided in respect of compensation by the
Customer may require review and verification through an independent audit.
Costs of the independent third party performing the verification of Customer’s
costs will be to the account of the AESO. AESO expects the Customer to
cooperate with the third party and provide, at the Customer’s cost, information
reasonably required to verify the Customer’s information.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-039
Reference:
2006 GTA Application, Information Response IPPSA-AESO-016
Preamble:
The response to IPPSA-AESO-016 states:
Page 1 of 1
The AESO expects that Article 24 will be amended so that compensation for
conscripted TMR will not approach the TMR cap unless the circumstances are
exceptional. Consequently, we do not foresee a significant administrative burden.
Request:
Please describe the exceptional circumstances the AESO envisions which may
lead to Article 24 compensation approaching the maximum TMR compensation
limit.
Response:
At present no circumstances are foreseen where compensation under the
proposed AS Article will exceed the TMR maximum. The comment was included
to acknowledge the possibility of some unforeseen exceptional circumstances.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-040
Reference:
August 4, 2005 Revised Application, Appendix B – Maximum TMR
Compensation, p. 5
Preamble:
Appendix B states:
Page 1 of 1
For simplicity the AESO proposes that a deemed capital structure is used with
70% debt and 30% common equity. This debt-equity ratio is consistent with the
evidence of the Ancillary Services Group dated February 21, 2002, filed in the
Board’s proceeding into Decision 2002-103.
Request:
Is there any independent basis for the 70/30 debt/equity split beyond it being
selected from out of a broader suggestion of the Ancillary Services Group in
2002?
Response:
No studies of the debt/equity split were performed or requested by the AESO.
Please see also the response to FIRM.AESO-026(b).
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
IPPSA.AESO-041 (a)-(b)
Reference:
August 4, 2005 Revised Application, Appendix B – Maximum TMR
Compensation, p. 6
Preamble:
Appendix B states:
Page 1 of 1
In cases where TMR service is provided by a generating unit at or near the end
of its life and the UCI amount is at zero, return will reflect a reasonable minimum
return amount.
Request:
(a)
(b)
Response:
(a)
(b)
Is there a specific amount the AESO has in mind for the “reasonable minimum
return amount”? If so, please provide the reasonable minimum return amount
and the rationale for it. If not please explain how the AESO will determine this
amount.
Does the AESO agree fully depreciated generation units, while they could be
retired due to limited value in energy markets, may still retain significant capacity
benefits to the transmission system and should be compensated accordingly?
Please refer to FIRM.AESO-018 (a).
Agreed in part. Compensation would be considered on a case by case basis if an
owner advised of a pending unit decommissioning and the capacity was required
to maintain the reliability of the transmission system.