ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
BR.AESO-001
Page 1 of 2
Reference:
Application, Page 3, Lines 1 and 43
Request:
The Application states that “some issues raised in the previous application no
longer need to be addressed” and “some of these changes are superseded.”
Please identify and explain which issues, if any, raised in the previous application
the Board is being asked to address.
Response:
Items in the original application or subsequent filings which continue to require
the Board to address are as follows:
1. To adopt minor wording changes to recognize AESO (rather than the
System Controller) and the directed (in place of required) nature of
service (2004 Amendment Application - Paragraphs 46 and 47).
2. Under existing Article 24.3(a) determine that references to prices paid to
third parties will be limited to prices which were arrived through recent
competitive processes and clarify that this provision does not apply to
TMR (2004 Amendment Application - Paragraph 49).
3. Determine that replacement of Article 24.3(b) and (c) with the revised
Prorated Fixed Cost concept (Option 3) is appropriate (2005 Amendment
Application - Page 5).
4. Determine that reference to “verifiable net opportunity costs” in the
existing Article 24.3(d) only applies to foregone electricity sales (2004
Amendment Application - Paragraph 53).
5. Determine that the directive with respect to the Proxy Unit Payment
Option has been satisfied and that such an option is to be excluded from
the AS Article (November 2, 2004 filing).
6. Determine that the directive with respect to the Compelled Ancillary
Services Agreement has been satisfied and that such an agreement is to
be excluded from AS Article (November 2, 2004 filing).
7. Determine principles to be used for proper interpretation of existing Article
24 for the period that the Article was in effect, including consideration of
the potential existence of market power and consideration of
secondary/indirect benefits to TMR providers (January 10, 2005 filing).
8. Approve the amendment to the AS Article to define the Maximum TMR
Compensation amount as required by Section 23 of the Transmission
Regulation and provide principles for determining the Maximum TMR
Compensation level (2006 General Tariff Application - January 31, 2005 Section 6.4).
9. Determine that clarifications to the Maximum TMR Compensation with
respect to prorating of costs and treatment of revenues are appropriate
(2005 Amendment Application - Pages 17 & 18).
10. Other relief as may be requested or as appropriate (2004 Amendment
Application – Paragraph 59).
Page 2 of 2
Items in the original application or subsequent filings which are no longer
required to be addressed by the Board are as follows:
1. Replacement of Article 24.3(b) and (c) with the Going Forward Cost
Concept (2004 Amendment Application - Paragraphs 50 to 52, and 54).
2. Confirm that any settlements under existing Article 24 are interim and
subject to adjustment (Aug 16, 2004 Amendment Application –
Paragraph 59). This request has been addressed in the Board’s letter
dated December 16, 2004.
AESO is not withdrawing any of the evidence or filings made prior to the 2005
Amendment Application.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
BR.AESO-002
Reference:
Page 1 of 1
Application, Page 7
Request:
(a)
Please provide a copy of the Department of Energy (DOE) paper referenced in
Section 2.1.
(b)
Please provide a copy of any relevant papers issued by the DOE as a result of its
market review process.
Response:
(a) The ADOE Electricity Policy Framework is attached as Att.BR.AESO-002 A.
(b)
An ADOE discussion paper titled “Refinement Options for Alberta’s Wholesale and
Retail Electric Markets” dated March 10, 2005 is attached as Att.BR.AESO-002 B.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
BR.AESO-003 (a)-(b)
Page 1 of 2
Reference:
Application, Page 8, Lines 10-23
Request:
(a) Does the AESO consider that principle 2 of the “remaining principles”
described on p. 8 of the consolidated application would generally be dealt
with through an application pursuant to section 8(3) of the Transmission
Regulation for an exemption from section 8(1)(f) of the Transmission
Regulation? If not, please explain why not.
(b) Relative to principles 3, 4 and 7 of the “remaining principles” described on p.
8, please explain what role, if any, the Board should have in scrutinizing the
procurement of TMR services.
Response:
Note that the original question referred to 8(1)(g) but the EUB advised that
the correct section should be 8(1)(f). The change has been made in the
question above.
(a) Yes. The AESO would expect principle 2 to be considered in made
applications pursuant to Section 8(3) of the Transmission Regulation. As
noted in the present application, principles 2, 3, 4, and 7 relate to AS
procurement processes. The procurement process principles were mentioned
in the 2005 Amendment Application for completeness, even though the
present application is to address compensation issues under conscription of
services.
Regarding the current status of procurement processes, on June 17, 2005
the AESO posted to its web site an Ancillary Services Procurement Process,
Version 1 (Please see Att.BR.AESO-003). The AESO continues to work with
stakeholders and the Market Surveillance Administrator to further develop
processes and business practices around competitive procurement of
Ancillary Services, including a process for determining if specific
circumstances results in a situation that is either contestable or noncontestable.
The objective is to develop a comprehensive transparent process. The MSA
is expected to actively monitor such processes.
Over the past 18 months, the AESO has taken a number of other actions
designed to minimize the use of conscription, facilitate transparency and
encourage competition in ancillary services as witnessed by the following:
 Implementation of Request for Proposals (RFP) for Calgary Area TMR
service;
 Implementation of RFP for Load Shedding Services (LSS);
 Underfrequency Mitigation Services Procurement Plan;
Page 2 of 2



Publication of Operating Reserve Procurement Guidelines;
Daily publication of Over-The-Counter and Watt-Ex prices for Operating
Reserves; and
Notification that Rossdale generating units were to be contracted for
TMR service.
For near-term congestion issues where transmission enhancements
solutions are not possible, AESO is identifying and forecasting TMR needs
as early as possible so contestable procurement can occur.
The AESO is not requesting inclusion of competitive procurement processes
and practices in the tariff, nor requesting Board approval of such processes.
(b) It is the AESO’s view that the Board’s role is to determine that the costs of
TMR services procured are just and reasonable during General Tariff
Applications.
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
BR.AESO-004 (a)-(c)
Reference:
Page 1 of 2
Application, Page 14, Fixed Costs
Request:
(a)
Please provide examples illustrating how the AESO would calculate payment for
fixed costs in situations where pool price was relatively high (above variable cost)
and relatively low (below variable cost).
(b)
Please explain how items such as major maintenance inspections/repairs (those
occurring every few years) would be accounted for.
(c)
Please complete the examples by illustrating how all variable costs would be
accounted for.
Response:
(a)
Attachment BR.AESO-004 contains illustrative examples of TMR costs, including
fixed cost compensation, to the AESO for each compensation option under
different pool price or out-of-merit scenarios. The maximum TMR compensation
level as proposed is also shown.
The workbook illustrates the generator’s revenue from the energy market,
revenue from TMR compensation and aggregate revenue. The revenues less
variable costs provide a contribution to the fixed costs of the generator. The
aggregate contribution to fixed costs as a percentage of fixed costs is estimated.
Included for reference is a case with no TMR direction where operations would
be solely for the energy market. A competitive TMR reference case is shown and
is based on prices resulting from competitive processes for TMR services.
The worksheet also includes examples assuming a 50% directed level and a
25% directed level.
Scenarios A and B are cases where pool price are greater than a unit’s variable
costs as would generally be the case for coal units. As such, the unit is in-merit
most of the time with few out-of-merit periods. TMR costs are generally lower.
Scenarios D and E are cases for units with a higher heat rate or lower efficiency
relative to the system. Examples would be gas-fired thermal units or less efficient
cogeneration units The unit’s variable costs are generally greater than the pool
price and therefore there are more out-of-merit periods.
Scenario C is a mid-scenario.
Page 2 of 2
The values plotted do not account for any effects of perverse incentives under
the existing Article 24 as described in the Amendment Application. Cost
increases due to the existence of perverse incentives would be in addition to
costs shown.
The workbook shows the formulas used for each option and the assumptions.
The workbook is intended to show simplified scenarios using assumptions about
the variation of pool price over a month and assuming simple directed operation
patterns. The workbook is not based on detailed hourly modeling or actual
results.
(b)
Compensation of major maintenance expenses would be calculated in a manner
consistent with the accounting treatment reflected in the Customer’s audited
financial statements.
(c)
Under Option 3, variable costs would be compensated for under the formula
described in Article 11.3(b)I of the tariff (Appendix B of the 2005 Amendment
Application). Compensation for such costs occurs only during out-of-merit
periods and would be calculated on an hourly basis, unlike fixed and indirect
costs. The out-of-merit payment is equal to the energy generated (MWh) in
compliance with the directive multiplied by the (Benchmark price less Pool price)
($/MWh).
2
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
BR.AESO-005 (a)-(c)
Reference:
Request:
(a)
Page 1 of 1
Appendix A, Page 1, proposed Article 11.3 (b) and 11.3(c)
In respect of the proposed Article 11.3(b), please confirm that the compensation
formula proposed would apply only in respect of conscripted TMR services and
not in respect of other types of Ancillary Services that the AESO may acquire on
a conscripted basis. If this cannot be confirmed, please explain.
(b)
In respect of the proposed Article 11.3(c), please confirm that this Article is
intended to apply in respect of Ancillary Services other than conscripted TMR,
but not to the conscription of TMR. If this cannot be confirmed, please explain
why compensation pursuant to Article 11.3(c) rather than Article 11.3(b) for a
TMR unit would be permitted under section 23(1) of the Transmission
Regulation.
(c)
If the AESO considers that Article 11.3(c) could apply to conscripted TMR
services, by way of example, please provide an illustration of how “verifiable net
opportunity cost” would be defined and determined.
Response:
(a)
Not confirmed. Article 11.3(b) is not limited to TMR services and could be applied
to Ancillary Services other than TMR. The main use of 11.3(b) will be for services
involving energy production as is the case with TMR. It is noted that Article
11.3(b) i only yields a positive number for ancillary services where energy is
generated and thus would have limited application for services such as Operating
Reserves, except for any energy actually generated related to the provision of
Operating Reserve Service.
(b)
Not confirmed. Article 11.3(c) is expected to apply to non thermal units such as
hydro units. This would occur if a hydro unit was directed to provide TMR service
and use limited hydro storage rather than save the stored water for a verifiably
better opportunity. AESO does not consider compensation for a verifiable net
opportunity cost related to foregone electricity sales to be prohibited by the
Transmission Regulation.
(c)
By way of example, if a hydro unit was directed to provide TMR service when the
pool price was $30/MWh and provision of the TMR service caused a verifiable
lost opportunity to generate in another period when pool price was $50, the
verifiable net opportunity cost would be $50 less $30 or $20/MWh.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
BR.AESO-006
Page 1 of 1
Reference:
Appendix A, Page 2, Average Monthly Fixed Costs
Request:
Please elaborate as to how this provision satisfies section 23(3) of the
Transmission Regulation.
Response:
The reference to Average Monthly Fixed Costs on page 2 of Appendix A is for
the purpose of determining compensation for conscripted AS services under
Article 11. The reference in Appendix A is not for the purposes of determining the
TMR Maximum as required by Section 23(3) of the Transmission Regulation.
The determination of TMR maximum compensation for purposes of Section 23(3)
of the Transmission Regulation is included in Appendix B.
ALBERTA ELECTRIC SYSTEM OPERATOR
Ancillary Services Article Amendment (1357161)
Monday, September 26, 2005
BR.AESO-007
Page 1 of 1
Reference:
Appendix E, Line 14
Request:
Please explain how the credit for common costs is arrived at.
Response:
The intent of the credit is to recognize that some generation facilities, in addition
to generating electricity, provide services to industrial and other processes and
determine a TMR cost of service which reflects the TMR use of such shared or
common facilities. Please refer to Amendment Application Appendix B, page 7
for a further description of common costs.
The steps are shown in Appendix E of the Amendment Application at lines 14,
and 49 to 53. The customer provides the amount of the credit for common costs
(line 14). The credit amount would include revenue and other benefits received
from the provision of other services. In steps 50 to 53 the amount to prorated to
TMR is calculated.