ISO Rules 9.1 Transmission Facility Projects
Industry Workgroup Meeting
January 16, 2013
Agenda
• Welcome and Introductions
• Objective for this module (NID and PPS cost estimates)
• Workgroup meeting logistics
• Overview of NID and PPS activities for cost estimating purposes (led by
ATCO and AltaLink)
• Review and discuss terms and proposed concepts/changes
• Next steps
2
Working Group Members
• ADC – Colette Chekerda
• AESO – Evelyn Kelly, Fred Ritter, Rob Senko, Bill Strongman, Kelly
Yagelniski
• ATCO Electric – Natalie Bunting, Steve Ambeault
• AltaLink – Darcy Fedorchuk, Gord Chalk, Janette Yearsley
• ENMAX – Shiv Kumar, Mike Wong, Stan Danko
• EPCOR – Suresh Sharma, Travis Robinson
• IPCAA – Jake Cheng
• Similan Consulting Inc.– Jana Mosley
• Suncor – Baly Farmahan
• TFCMC – Henry Yip
• TransAlta – Anirban Bosu
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Objective
Prepare required changes to: ISO Rule 9.1.2; associated information
documents; templates; or business practices to improve the quality and
accuracy of cost estimates and enable the AESO:
• to appropriately evaluate alternatives for potential transmission
solutions to address a Need;
• to enable cost estimate “reasonableness” assessments and project
scope reviews to support TFO FA filings; and
• to provide quality and enhanced transparency of cost reporting to the
AESO’s stakeholders.
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Workgroup Meeting Logistics
Wednesday January 30, 2013 - Edmonton
Wednesday February 20, 2013 - Calgary
Wednesday March 13, 2013 - Edmonton
Wednesday March 27, 2013 - Calgary
Wednesday April 10, 2013 - Edmonton
• 10:00 a.m. – 3:00 p.m.
• Alternate between Calgary and Edmonton
– Can the Edmonton meetings be hosted by ATCO or EPCOR?
• Conference call capability
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Roles and Expectations
• Workgroup members
– Attend all meetings or fully brief alternates
– Obtain feedback from your organization with regard to all
discussion items
• AESO
– Organizes and leads the meetings
– Posts the presentation on the AESO website following each
meeting
• No meeting minutes prepared or posted
– Makes the final determination on changes to ISO rules,
information document, template and business practice
– AESO posts a summary of proposed changes on the AESO
website for industry
6
Overview of NID and PPS activities
• Discussion led by
– ATCO Electric
– Altalink
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Terms for Review
• Baseline Cost Estimate
– Accuracy
– Scope Change
• Assumptions
• Contingency
• Facility Costs
– Material Costs
– Labour Costs
– Turn-key Costs
• Non-Facility Costs
– Distributed Costs
– Owners
– Other Costs
• Escalation
8
Terms for Review
Defined terms from ISO Rules 9.1.2 TFO Obligation to Provide Estimates
and Proposals:
• NID Estimate means a document to be completed substantially in the
form of the “Needs Application Cost Estimate” posted by the ISO on its
website.
• Project means the project generally described as any one of the
following: (i) the means or manner by which a constraint or condition
affecting the operation or performance transmission system could be
alleviated as identified in a NID approved by the EUB pursuant to s. 34(3)
of the Act; (ii) the request for system access service pursuant to s. 5(5)(b)
of the TR; (iii) all the transmission facility proposals referred to in s.
35(1)(a) of the Act with respect to a specific approved NID; or (iv) the
“transmission line”, as defined in the HEEA, which has been approved by
the EUB pursuant to the HEEA.
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Terms for Review
Defined terms from ISO Rules 9.1.2 TFO Obligation to Provide Estimates
and Proposals:
• Service Proposal means a document to be completed substantially in the
form of the "Proposal to Provide Service" posted by the ISO on its
website.
• Service Proposal Estimate means a document to be completed
substantially in the form of the “Service Proposal Estimate” posted by the
ISO on its website.
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Base Line Cost Estimate
• Interpretation:
– The $100M becomes the project baseline cost at the NID
estimate stage once accepted by the AESO, and
– It is understood and accepted that the actual project costs
could vary between $70M and $130M
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Base Line Cost Estimate
• Interpretation:
– The baseline cost is adjusted to $105M at the PPS stage once accepted by the AESO, and
– It is understood that the actual project costs could vary between $94.5M and $126M
– The AESO does not reconfirm the NID preferred alternative because the PPS estimate accuracy
levels are within the +/-30% accuracy levels of the NID estimate
– If the PPS estimate accuracy levels are outside the +/-30% accuracy levels of the NID estimate then
the AESO must reassess the preferred alternative which could lead to:
•
Requesting the TFO to perform further work on the PPS; or
•
Accepting the PPS; or
•
Declining the PPS and re-starting the project.
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Base Line Cost Estimate
• Interpretation:
– The baseline cost is adjusted to $110M at the PPS stage once
accepted by the AESO, and
– It is understood that the actual project costs could vary between
$99M and $121M
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Base Line Cost Estimate
• Base line cost estimate includes:
– Project cost, plus
– Contingency, plus
– Escalation
• The base line is prepared in current dollars
– The cost variance is the difference between the base cost/adjusted
base cost and actual costs
• For discussion:
– Is there a need to formally define the base line cost?
– Is it sufficient to provide an explanation in the Information
Document?
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Assumptions, Contingency, Scope Change
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Assumptions, Contingency, Scope Change
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Assumptions
• Assumptions include items such as:
– Length of line
– Geotechnical conditions
– Outages can be accommodated when needed
– Lack of validation of earthwork quantities
– Construction contractor availability and bid price
– Pipeline and environment mitigation
– River, high-way, line crossings
– Use of a helicopter
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Assumptions
• Assumptions do not items such as:
– Scope changes
– Design criteria change
– Legislative change
– Extraordinary events (such as major strikes, natural disasters,)
• For discussion:
– Should a checklist of assumptions be developed for
consideration on every project so there is consistency
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Contingency
• Contingency:
– Stems from assumptions; assumptions lead to a risk assessment
which could result in the need for a contingency amount
– Contingency is included in the base line cost estimate
– Allows for items such as conditions or events for which the state,
occurrence, or effect is uncertain and that experience shows will likely
result in additional costs
• For discussion:
– Is there a need to formally define contingency?
– Is it sufficient to provide an explanation in the Information Document?
– Should there be an threshold associated with contingency, i.e.
• Cannot be more than X% of the base line cost
19
Scope Change
• A scope change is:
– Functionality/costs not contemplated in the project scope and
translated into the baseline cost or contingency
• For discussion:
– Is there a need to formally define scope change?
– Is it sufficient to provide an explanation in the Information Document?
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Facility and Non-Facility Costs
• Facility Costs
– Labour – engineering, site preparation and survey, construction,
commissioning
– Material - by component
• Non-Facility Costs
– Owners Costs - PPS, FA, land
– Distributed Costs – procurement, project management, construction
management, contingency
– Other Costs – AFUDC, E&S
• For discussion:
– Is there a need to formally define distributed costs?
– Is it sufficient to provide an explanation in the Information Document?
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Distributed Costs
• Distributed costs includes:
– Procurement - the labour costs required in the purchasing of project materials
– Project management - labour required to manage projects as well as the partial cost of
building space, utilities, etc
– Construction management (labour only)
– Warehouse, yard, (include in distributed costs or elsewhere?)
– Logistics – camp and office (include in distributed costs or elsewhere?)
– Helicopters, lay down yards (include in distributed costs or elsewhere?)
– Escalation
•
Suggest removing from distributed costs and include as a separate line item
– Contingency
•
Suggest removing from distributed costs and include as a separate line item
• For discussion:
– Is there a need to formally define distributed costs?
– Is it sufficient to provide an explanation in the Information Document?
22
Owners and Other Costs
• Owners costs include:
– Preparing the cost estimates (NID and PPS)
•
Includes the labour related to any engineering required to prepare the cost
estimate
•
Includes the labour related to preparing the PPS Proposal (word document)
– Preparing the facilities application (includes AUC 007 requirements, i.e. PIP)
– Regulatory proceeding associated with facilities application
– Land costs
• For discussion:
– Is there a need to formally define distributed costs?
– Is it sufficient to provide an explanation in the Information Document?
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Owners and Other Costs
• Other costs include:
– Allowance for funds used during construction (“AFUDC”)
– Engineering and Supervision
•
This is an AUC approved percentage which is applied to projects
•
Includes costs such as warehousing, accounting, fleet, office space, project
management costs that are not specific to a project, supervision and
engineering not specific to a project
•
It does not include costs that can be allocated directly to a project
• For discussion:
– Is there a need to formally define distributed costs?
– Is it sufficient to provide an explanation in the Information Document?
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Labour and Material Costs
• Labour Costs – engineering, site preparation, survey, brushing, right of
way preparation, construction, commissioning, installation, minor tools to
support construction, rental of equipment and tools, stringing a conductor
– Internal
– Contractor
• Material Costs – includes only the costs for the material, no labour associated
with procuring the materials (includes FOB)
• Turn-key – some project costs are turn-key where both labour and
material are consolidated
– Converter station –material and installation
– Typically third party
• For discussion:
– Is there a need to formally define turnkey, labour and material costs?
– Is it sufficient to provide an explanation in the Information Document?
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Escalation
• Escalation includes:
– Changes in the cost or price of specific goods or services in a given economy
over a period specific to an item or class of items (not as general in nature).
– Driven by changes in technology, practices, and particularly supply-demand
imbalances that are specific to a good or service in a given economy.
– Transmission project costs are estimated using current dollars
– Escalation is used to allow for increases in the cost of material and labour
during the project time period; escalate current costs into the future, not risk of
labour availability (contingency)
• For discussion:
– Can all TFOs use an agreed upon index for purposes of escalation?
– If so, what would this index be?
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NID Cost Estimate – Valid Time Period
• For discussion:
– Is there a need to establish a consistent time period regarding validity of the
NID cost estimate?
– If so, what is the time period?
– Does this time period need to be set out in a rule?
– What impact, if any, does this have on the preparation of the NID cost
estimate?
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ISO Rules 9.1 Terms
• NID Estimate
• Project
• Service Proposal
• Service Proposal Estimate
• Questions for discussion:
– Is there a need to update these definitions to improve the
quality and accuracy of cost estimates?
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Next Steps
• Discuss the “discussion items” within your organizations
– Bring back organizational views to the January 30 meeting
• Alignment with proposed changes or alternate
recommendations
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Thank you