Stakeholder Comment and AESO Reply Matrix
AESO Consultation on Transmission Cost Accountability
Discussion Paper
May 4, 2012
The AESO is asking market participants and other interested parties to participate in the AESO’s consultation and to provide
comments on the AESO’s discussion paper, Transmission Cost Accountability
Discussion Paper – Executive Summary and Introduction
Do stakeholders have any comments on the Executive Summary and Introduction sections?
Stakeholder
Stakeholder Comment
AESO Reply
IPCAA
1.
The scope of this consultation needs to
include more explicit information regarding the
points of interaction between the AESO,
stakeholders and the AUC.
1.
The AESO views that “the more explicit
information” request can be addressed
through the recommendations paper as
the AESO continues to consult on this
effort.
2.
This may include the need to review the role of
the AESO with respect to the prudency of
expenditures by the TFOs.
2.
The AESO intends to discuss this with the
Alberta Utilities Commission (“AUC”) and
determine areas where the AESO may be
able to provide assistance and still remain
within the current legislative framework
insofar as the roles of the AESO and AUC
are defined.
3.
There should also be an Objectives section
outlining the intent of the review and outcomes
that may result.
3.
The AESO intended the discussion paper
to stimulate industry discussion on
transmission cost accountability at an
initial high level. Stakeholder comments
would then assist the AESO to identify
specific recommendations for change
through the issuance of a
“recommendation paper” for further
consultation.
4.
AltaLink supports the principles of
4.
The AESO intends to discuss AltaLink’s
AltaLink
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transmission cost accountability and
appreciates the opportunity to participate in
the AESO’s consultation process. AltaLink’s
preference is that a cost accountability
framework be developed through a crossindustry working team involving commercial,
public interest, regulatory and quasi-regulatory
entities under the direction and oversight of
the Alberta Utilities Commission (“AUC” or
“Commission”). The AUC’s broad statutory
mandate and the fact that transmission cost
accountability interconnects numerous
stakeholders support AltaLink’s preference.
AUC
Executive summary section
No comments.
Introduction section
5. The introduction section highlights
recommendation 6 of a report prepared by the
Transmission Facility Cost Monitoring
Committee (TFCMC report) dated in June
2011, and goes on to note that the TFCMC
has a mandate to examine transmission facility
projects forecast to cost more than $100
million.
6.
Notwithstanding the TFCMC’s mandate, the
AESO’s review process should not be
confined to projects larger than $100 million
because:
 the aggregate cost of projects which
individually cost under $100 million may
still be significant.
 there may be significant efficiencies in redesigning cost reports for all sizes of
projects, rather than having rules which
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suggestion further with the AUC and also
consider the AUC’s comments to this
discussion paper. Any subsequent
recommendations or actions would be
coordinated with the AUC.
5.
The AESO agrees with the AUC that the
redesign of any cost reporting templates,
or modifications to ISO rules Section 9.1,
should encompass all transmission capital
projects and not just projects that exceed
$100 million. The AESO will address this
further in the recommendations paper
following further consultation with the
AUC.
6.
The AESO is committed to coordinating its
review efforts with the AUC.
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
TransAlta
7.
apply to larger projects but do not apply to
smaller projects (or vice versa).
since projects costing less than $100
million are not brought forward for review
by the TFCMC, there is also a need to
ensure that cost reporting made available
at the prudence review stage is sufficient
to facilitate a thorough review by the
Commission and by other interested
parties who may participate in Commission
proceedings that examine the prudence of
as-spent costs.
The Executive Summary/Introduction does not
include within the four areas identified the role
of the AUC in reviewing and approving the
costs of a project, first of all, with the Facilities
Application and, secondly, when the project is
complete and is assessed for prudency before
being allowed, in whole or in part, in ratebase.
7.
The AESO acknowledges the AUC role in
reviewing and approving the costs of a
project.
8.
The AUC, in its comments to the
discussion paper, also made reference to
AUC decision 2011-453. The AUC
confirmed its intent to participate in the
The regulatory tools are in place for the AUC
to decide the prudency of expenditures with
the authority to allow or disallow such
expenditures.
The AUC role is a fundamental part of cost
accountability for transmission costs. The
AUC role is recognized in the Background and
subsequent sections but needs to be
highlighted in the Executive Summary and
Introduction.
8.
Further, the AUC in decision 2011-453
(November 18, 2011) stated the following:
“The Commission re-affirms its intention to
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develop an AUC rule relating to direct assign
project cost control and cost reporting matters
and confirms its intention to conduct broad
consultations as it develops this rule.”
current AESO review process. Please
refer to AUC letter dated December 8,
2011 to the AESO at
http://www.aeso.ca/downloads/2011-1208__AUC_Comments_on_Transmission_Cost
_Accountability_Paper.pdf .
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Discussion Paper – Purpose, Scope, and Background
Do stakeholders have any comments on the Purpose, Scope, and Background Sections?
Stakeholder
Stakeholder Comment
AESO Reply
IPCAA
9.
9.
IPCAA submits that the scope also needs to
include the AESO’s Competitive Process (CTI
to Fort McMurray). Ratepayers deserve the
opportunity to be updated on project progress
for this project – and any future project that
use the AESO Competitive Process.
The scope should at least include monthly
project reporting and timing for the
Competitive Process CTI project, but should
also include reporting on cost overruns if
ratepayers will be responsible for any
overruns.
The AESO is committed to keep
stakeholders informed regarding the
competitive process associated with the
Fort McMurray Critical Transmission
Infrastructure (“CTI”) project.
Please refer to
http://www.aeso.ca/transmission/21684.ht
ml for progress reports.
The level of stakeholder reporting will
evolve as the project evolves.
The Fort McMurray CTI project will require
modifications to existing transmission
facilities owned and operated by
incumbent transmission facility operators
(“TFOs”) to enable the circuits to be
interconnected to the Alberta
interconnected electric system. The scope
of these modifications will be identified in
the AESO’s functional specification and
will involve separate TFO facility
applications as direct assigned by the
AESO. The scope of work that will be
direct assigned to incumbent TFOs will be
in accordance with ISO rules Section 9.1
Transmission Facility Projects, which
includes the reporting obligations.
AltaLink
10. The Discussion Paper states that cost review
and accountability involve processes “that
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10. The AESO generally agrees with
AltaLink’s comment. However, it should be
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result in a project being implemented at the
lowest cost”. AltaLink submits that it is neither
reasonable nor consistent with the public
interest for cost accountability to be assessed
on the basis of project implementation at an
unqualified “lowest cost”. The most
appropriate cost objective for Albertans is
network investment at lowest reasonable
lifecycle cost given the long-term requirements
of system reliability and the growing demands
of customers, not just the lowest initial capital
cost.
recognized that the AESO’s statement
was in the context of the execution phase
of the project (i.e. once a particular
solution has been selected and it is being
executed). The AESO would acknowledge
that, for example, the TFO may not
necessarily always award the contract to
the lowest bidder with the ISO rules
Section 9.1.5 addressing obligations
under such circumstances.
11. Can the AESO comment further on the role of
the Electric Transmission Council and why it
was discontinued?
11. It is the AESO’s understanding that the
Electric Transmission Council or ETC
existed prior to deregulation initiated in the
mid-1990s and was replaced through the
establishment of an independent
transmission administrator, and
subsequent formation of the AESO.
12. Can the AESO comment on why the T-Reg
was modified to compel the Commission to not
have the AESO comment on prudency?
12. It is the AESO’s understanding that the
amendments to the T-Reg were intended
to provide further clarity respecting the
roles of the AESO and the AUC, and to
avoid duplication of efforts. The AUC is
clearly accountable for TFO prudency
reviews.
Suncor
13. See Suncor comments in Terms of Reference
Stakeholder Comment and Reply Matrix.
13. Please see the AESO replies to Suncor’s
comments in the Terms of Reference and
Stakeholder Comment and Reply Matrix.
AUC
Purpose section
ADC
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No comments.
Scope section
14. The draft discussion paper correctly excludes
CTI projects.
The list of aspects of cost
review/accountability appears to be limited to
factors that impact the design of the project
itself and the management of changes to
scope. However, the AUC considers that the
scope should also include ways to address
cost reporting and cost accountability as
decisions are made during project execution.
Post completion reviews should also be
included within the scope of this review.
14. The AESO appreciates the AUC’s
comments and will consider them in the
subsequent development of its
recommendation paper.
As noted in the introduction comments, the
scope of this review should not be limited to
projects estimated to cost in excess of $100
million.
Background section
In the second full paragraph on p. 4, the AESO
highlights the fact that section 25 of the
Transmission Regulation precludes the AUC
from asking the AESO to make any statement
about the prudence of a TFO or other person
in managing a transmission facility project.
The background section also correctly notes
that the AUC is responsible for assessing TFO
direct assign project cost prudence.
The Commission has received suggestions
from a number of parties participating in TFO
GTAs regarding the AUC’s ability to assess
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EDTI
the prudence of TFO direct assign project
costs given the information available for
prudence assessments and the restrictions
imposed under the Transmission Regulation.
Some of these suggestions are noted in
greater detail in section 8.1 below. The
Commission encourages the AESO to
consider these parties’ submissions in the
context of this review.
15. Could the AESO please be more specific in
identifying its legislative jurisdiction and
authority to review the prudence of capital cost
estimates and project scope changes resulting
in cost changes?
15. The AUC has the legislative authority to
conduct prudence reviews of capital
expenditures carried out by the regulated
transmission owners.
Section 25(1) and 25(2) of the
Transmission Regulation (“T-Reg”) clearly
states the AESO’s authority to review the
reasonableness of cost estimates for the
intended purpose of enabling the AESO to
evaluate various transmission alternatives
to address a particular need.
Discussion Paper – Current Roles and Accountabilities
Do stakeholders have any comments on the Current Roles and Accountabilities Section?
Stakeholder
IPCAA
Stakeholder Comment
16. AESO Role – 6.1 The current mechanism for
establishing the transmission plan and the
consequent projects within the plan is the
singular inability of the Plan to identify and
quantify benefits to ratepayers. The end result
is that there is no ability to establish priorities
for projects – so all projects conceived
proceed in parallel – but not all projects are
equal.
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AESO Reply
16. The current legislative framework does
not require the AESO to “quantify
benefits to ratepayers” nor do AUC
rules require such analysis in
conjunction with the submission of a
need application to the AUC pursuant
to section 34 of the Electric Utilities Act
(“EUA”). Further, section 34(1), section
11(3) of the T-Reg and AUC Rule 007
set out what the need identification
document (“NID”) must contain. The
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AESO’s analysis includes identification
of the time when a particular facility
must be placed into service to meet a
particular need.
17. This is further exacerbated by the ‘selling’ of
the projects on a NID estimate, but having no
accountability back to this estimate by the
TFOs. The NID estimate is always
superseded by the PPS estimate, which is
often higher than the NID, yet the benefits do
not change.
17. The AESO relies on the TFOs to prepare
a NID estimate. The AESO has
implemented a practice to include the
detailed NID estimates prepared by the
TFO within its NID application.
18. The issue of prudency that is assessed by the
AUC needs to consider the difference between
a NID estimate, guided by detailed cost
benchmarking, and the costs submitted by the
TFOs. Allowing the TFO to set a PPS, without
accountability for costs in excess of the
original estimate for the project, makes the
prudency tests problematic.
18. This particular comment appears to be
directed at the AUC. The AESO will
forward this comment to the AUC for
consideration given the AUC’s role to
assess prudency.
19. TFO Role 6.2 – In addition to the prudency
concern of not holding the TFO accountable
for differences between NID estimates and
PPS estimates, we need to consider better
mechanisms for monitoring multi-year projects.
19. The AESO, with assistance from the
TFOs, has provided the Transmission
Facilities Cost Monitoring Committee
(“TFCMC”), of which IPCAA is a member,
the results of transmission cost analysis
that provide explanations for differences
between NID estimates and proposal to
provide service (“PPS”) estimates for all
projects over $100 million. The AESO has
provided the TFCMC with monthly
progress reports (i.e. TFO supplied
monthly progress reports as obligated
under ISO rules Subsection 9.1.5.3) for all
projects over $100 million. The AESO will
consider suggestions or recommendations
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from stakeholders or the TFCMC in
regards to enhanced mechanisms for
monitoring multi-year projects.
20. Interveners in deferral account proceedings
have no ability to judge the prudency of costs
added on projects that span multiple years,
because there is no tracking of progress
against original targets. A project may appear
to be within budget in any given year, but may
not have achieved the appropriate milestones
for the dollars spent to date. Thus, the project
would exceed the budget closer to the
completion phase and these costs would
eventually appear in a final deferral account
application.
20. The AESO would defer to the AUC for
consideration of IPCAA’s comment in this
regard.
The difficulty in monitoring costs for multi-year
projects has been compounded by the ability
to include CWIP in rate base. The costs are
hitting the books earlier making disallowances
of costs less likely to occur – even if the
expenditures are found imprudent.
21. AUC Role 6.3 – the missing element is the
inability to review the AESO 20-year plan
before a Regulator. Currently, the Plan is
submitted to the AUC for information only.
Many other electricity jurisdictions require
long-term transmission plans to be subject to
review and approval by their respective AUC
equivalents.
21. The AESO will forward this comment to
the DOE for their consideration. The
current legislative framework does not
require the AESO to file the Long-Term
Plan with the AUC for their approval. It
should be recognized that the AESO
carries out a considerable level of public
consultation prior to finalizing its LongTerm Plan.
The 20-year plan should be filed with the AUC
for approval every 2 years and should include
a benefits assessment as well as costs to
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enable an effective review of the “public
interest”. This process, if effective, could
eliminate some NIDs for bulk system projects,
thus speeding up the regulatory process. The
review process needs to provide the
application of reliability criteria, load forecasts,
etc., in order to enable external parties to test
the need for new bulk system projects
themselves. This will provide better checks
and balances for the overall electricity system
in Alberta.
Other Jurisdictions – Section 7 –
In BC, the 2011 Integrated Resource Plan
includes 30-year transmission projects and is
submitted to the government for approval
http://www.bchydro.com/planning_regulatory/ir
p/about_irp/faq.html
Previously, the 2008 Long-Term Acquisition
Plan and the 1995, 2000, 2004 and 2006
Integrated Electricity Plans were all filed with
the BCUC for review and approval.
Ontario submits its Integrated Power System
Plan (IPSP) to the Ontario Energy Board
(OEB) for approval. The 2011 Plan is in
development.
In both the BC and Ontario situations, the
spotlight is on the long term plans filed for
review and approval which tends to keep them
consistent with public interest requirements.
AltaLink
22. As is clear from the AESO’s Discussion Paper,
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22. The AESO will discuss AltaLink’s proposal
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transmission cost accountability is complex
and interconnects numerous stakeholders
including TFOs, TFO customers, the AESO,
distribution facilities owners (“DFOs”), and the
AUC itself.
further with the AUC. Follow up actions
will be identified in the recommendation
paper.
AltaLink therefore recommends that any
transmission cost accountability review
impacting the industry should be led by the
AUC and engage a cross-industry working
team that includes stakeholders and direct
influencers on transmission costs such as the
TFO, DFO, AESO, and key customer
representatives. AltaLink anticipates that
process would address, among other things,
transmission cost accountability, including the
respective roles of all agencies and entities
involved in or impacting transmission project
development, the process and the weight that
is to be accorded to the roles of those involved
in cost review, oversight and prudency.
ADC
23. ADC suggest that another role for
“interested person” could be added for
clarity:
The T-Reg Section 46 states:
Prudence of activities and costs
46(1) The Board must consider that
(a) the costs and expenses referred to in
sections 39, 40 and
41 that are included in a TFO’s tariff or a
DFO’s tariff, and
(b) the ISO’s own administrative costs that
have been approved by the ISO members
are prudent unless an interested person
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23. The AESO acknowledges the ADC’s
suggestion and the important role played
by “interested persons” to the extent such
“interested persons” are directly impacted
by a particular project.
In the AESO’s opinion, an “interested
person” in this context would refer to an
eligible person or persons (i.e. as
determined by the AUC) that is directly
impacted by an AUC decision associated
with a TFO tariff application. The AUC has
established a clear process to enable
eligible persons to question the
submissions of a TFO and seek additional
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satisfies the Board that those costs or
expenses are unreasonable.
As part of the consultation the ADC requests a
discussion on how an interested person would
be able to demonstrate that the TFO’s costs
are unreasonable based on currently available
information.
AUC
AESO Role
24. The description of the AESO’s primary role
appears to be focused on “what” facilities are
constructed. The Commission considers that
the AESO’s role in determining the timing of
the need, and the AESO’s ability to adjust that
timing, if necessary, is as important as
determining what facilities will be constructed.
25. The review process should reflect the AESO’s
ability to specify or adjust the timing of the
need given the broad oversight provided to the
AESO under section 15(1) of the Transmission
Regulation to “make arrangements for the
expansion or enhancement of the transmission
system.” This would include directing TFOs to
stage, delay, or expedite transmission projects
as circumstances warrant.
information (i.e. through information
requests), to enable an interested person
to assess the reasonableness of a TFO’s
expenditures.
24. The AESO acknowledges, and agrees,
with the AUC’s statements in this regard
for projects where the need has been
approved by the AUC.
25. The AESO acknowledges that it already
has the ability to enable it to direct the
TFOs to stage, delay, or expedite
transmission projects; however the final
decision rests with the AUC and is subject
to review of the AESO’s determinations in
this regard.
TFO role
No comments.
AUC role
26. The first full sentence of the last full paragraph
of p. 8 should be reworded as follows:
“The AUC approves forecast TFO costs,
including a forecast of direct assigned capital
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26. The AESO acknowledges the AUC’s
suggestion, as this provides enhanced
clarity in regards to describing the AUC’s
role.
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costs, which is approved in aggregate, as part
of a TFO tariff application proceeding.”
At the end of the section, please add the
following paragraphs:
“Section 46 of the Transmission Regulation
requires the AUC to consider many TFO direct
assign project costs to be prudent unless an
interested party satisfies the AUC that the
costs are unreasonable. For the costs
captured in section 46 of the Transmission
Regulation, the onus on the applicant under
section 121 of the Electric Utilities Act to
demonstrate that the costs proposed in its
tariff are just and reasonable is shifted to
stakeholders. These stakeholders, and not the
utility, must demonstrate that the costs
captured in section 46 of the Transmission
Regulation are imprudent and the Commission
is required to exercise forbearance unless an
interested party has demonstrated that these
costs are unreasonable.”
“The current AUC regulatory process for cost
review of transmission project expenditures
focuses largely on deferral account
proceedings. Current regulatory procedures do
not contemplate a forward-looking stance that
would apply both a thorough review of the
expenditures beforehand and allow for
continuous, proactive oversight and evaluation
of costs while the project is ongoing.”
ENMAX
AESO Role
27. ENMAX maintains its position that the
regulation which obligates the AESO to
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27. The AESO disagrees with ENMAX’s
position in this regard, as to take a
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“develop transmission to accommodate all
forms of in-merit generation regardless of the
load or capacity factor for the particular
technology associated with the generation” is
not in the public interest.
position otherwise would be counter to
Fair, Efficient and Open Competition
(“FEOC”) market principles and
inconsistent with legislative requirements.
AUC Role
TransAlta
28. Timely AUC approval of facility applications, in
ENMAX’s view, is a major concern. As the
period between the submission and approval
grows, so too does the variance of cost
estimates and the project scope.
28. The AESO will forward this comment to
the AUC for their consideration.
29. To aid transparency and to provide information
to assist in this ongoing discussion it would be
of interest to have a listing and details of the
actual prudency reviews by the AUC/EUB
where costs of transmission facilities were in
whole or in part disallowed or given less than a
full equity rate of return or other regulatory
treatment. This would also aid to inform the
AUC consultation process for the new rule
proposed on cost control.
29. The AESO will forward TransAlta’s
suggestions to the AUC for their
consideration.
If the AUC assesses that projects are prudent
and yet the costs exceed the estimate at the
time of Facilities Approval then the focus must
be on improving the quality of the estimates
and/or providing estimate details which
provide greater transparency of areas of
expected variability and which change the
scope of the estimate, e.g. changes in line
length, number of deadend structures, and so
on.
EDTI
30. For example, in Section 6.1 – page 6 – bullet 2
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30. The AESO acknowledges, and agrees
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– please specify the legislative authority for the
AESO to review/ensure that functional
requirements result in reasonable and
prudent capital costs.
Section 25(1) & (2) of the Transmission
Regulation limits the authority of the AESO to
review TFO cost estimates for
reasonableness alone and solely for the
purpose of making transmission system
planning decisions, given the TFO’s intended
use of those cost estimates. The AESO has
no jurisdiction to look at the prudence of the
TFO’s intended use. Only the AUC can
assess the costs incurred as being prudent or
not after the project is completed.
with EDTI’s view that the AUC has the
authority to assess prudence of final
capital expenditures.
The statement “Ensuring scope and
functional requirements result in
reasonable and prudent capital costs
while still meeting the need and reliability
standards” is in the context of the AESO’s
role in identification of a particular
transmission solution that meets a
particular need at a reasonable cost (i.e.
based on an assessment of the cost
estimates of the various alternatives), and
such investment would be prudent to meet
such need and would be in the public
interest.
Discussion Paper – Section 8.1-Accountability for cost estimates for transmission projects
Do stakeholders agree that the current regulatory framework is adequate to ensure the appropriate checks and balances are in place
with respect to cost control of transmission projects?
Stakeholder
Benign Power
Stakeholder Comment
31. No. Definitely not and they never will be unless
Alberta goes to a fixed price bid system. The
current MONOPLY, direct assign, no bid, plus
50% to minus 10% estimates and with no
accountability or repercussions far being over
cost; benefits TFO profits while the rest of
Albertans (Martha & Henry), all load
businesses, all generator businesses all lose.
The citizen shareholders of Alberta are not
being well served in the public interests by the
existing system.
AESO Reply
31. The comment is acknowledged and will be
forwarded to the DOE for their
consideration. The only transmission
project that is currently being advanced on
a “competitive bid” basis ( subject to AUC
approval of the process), is the CTI project
involving two 500 kV AC lines to Fort
McMurray and as identified in the EUA
Schedule.
IPCAA
32. IPCAA submits that the current regulatory
framework is not adequate to ensure the
32. The AESO will undertake to discuss
IPCAA’s concern with the AUC. The AUC
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appropriate checks and balances are in place
with respect to cost control of transmission
projects.
has the legislative authority to determine
the prudence of TFO expenditures.
The current mechanism does not allow for
input into the benefits of added transmission
nor into the alternatives that should be
considered if costs escalate on approved
projects.
AltaLink
33. There needs to be an independent entity with
specific responsibility for reviewing costs and
decisions with consideration for prudency and
value to ratepayers. This independent entity
needs to have sufficient funding and expertise
to perform an effective oversight function.
33. In the AESO opinion, the independent
entity being described by IPCAA is
already in place in the form of the AUC.
The AESO will have further discussions
with the AUC in regards to IPCAA’s
suggestion.
34. While the AESO and AUC cost oversight and
control regime currently in place is rigorous,
both the current framework, as well as the
proposals set out in the Discussion Paper,
overlooks the context and influence of other
parties and their impact to the overall
transmission project costs incurred throughout
the transmission project execution lifecycle,
particularly as it relates to more complex,
larger scale, multi-year transmission projects.
34. The AESO will undertake to further
discuss AltaLink’s concerns with the AUC.
Further the Discussion Paper does not fully
address or bring into context that the multiple
independent and interrelated sources of
compliance and regulatory requirements have
on overall transmission cost accountability and
project cost escalation. Specifically,
Transmission Facilities Owners (“TFOs”) are
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not the singular source for project cost drivers.
TFO’s however must represent transmission
project costs and scheduling impacts related
to the appropriate compliance response to
environmental, stakeholder and other
regulatory requirements, each of which impact
in-service timing, and project scope and
ultimately project cost along the full lifecycle of
transmission projects. Further detail is
provided in the attached cover letter “AESO
Consultation on Transmission Cost
Accountability Altalink letter Dec 9, 2011”.
A full consideration of these issues is best
achieved through a cross-industry working
group under the auspices of the AUC.
ADC
35. No, the ADC does not agree that the
appropriate checks and balances are in place.
If the AESO is unable to make any comments
with respect to prudency, and an interested
person has the burden of proof to show that
cost were unreasonable – after the fact, then it
is impossible to know whether costs were
controlled. It seems that the risk to TFO’s to
have costs deemed imprudent is extremely
low.
35. The AESO will undertake to discuss the
ADC’s concern with the AUC. The current
legislation (Section 25(5) of the T-Reg) is
clear insofar “…the Commission must not
require the ISO to make any statement
with respect to a TFO’s or other person’s
prudence in managing a transmission
facility project.”
Suncor
36. Suncor supports the proactive development of
transmission to meet future load and market
need. Suncor however seeks to balance the
current regulatory framework to ensure it is
adequate with respect to cost control for
transmission projects. Under the current
market construct Suncor agrees with the
principle of open and unconstrained
transmission access. However there is
36. The AESO strives to meet customer
needs for system access in a manner
which is non-discriminatory and therefore
is not in a position to prioritize which
customer gets connected first. In some
instances the AESO may not be able to
connect a particular customer until major
system reinforcement is advanced in an
area which subsequently becomes a
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currently no test or quantification as to the
relative priority by regional or system benefit,
of such access. Without such test all projects
in every area are equally important, creating
increased timing and cost pressure across the
Province as TFOs respond with multiple facility
applications.
priority in order to enable customer
interconnection.
The sheer number and volume of facility
applications is evidence of expansion without
the appropriate prioritization of benefits to the
regions or the overall system.
Similarly the AESO’s twin mandates of system
access and reliability in themselves do not
balance, address or prioritize the benefit of
transmission projects to the regions or the
system as a whole.
37. The regulations should be adjusted to allow for
some degree of testing of prioritization,
through a system and regional benefit process
administered by the AESO, to help alleviate
the allocation of scarce resources... Further
this process should form part of the AUC
decision matrix in dealing with need and
facility applications.
37. The AESO continues to have discussions
in the TFCMC meetings in regards to
project prioritization.
38. Additionally, in certain instances the AESO
rules and standards themselves may be
responsible for major cost increases in
projects. For example, Suncor questions the
need for a 100 year reliability standard in
transmission and notes that this has likely
increased the cost of projects considerably
across the board.
38. The AESO consulted extensively in
regards to ISO rules Section 502.2 Bulk
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Transmission Line Technical Requirements
prior to filing it with the AUC for approval.
This new rule has been in effect since
January 1, 2012. The requirement for a
100 year environmental loading criteria is
applicable to double circuit 240 kV lines
and 500 kV AC and DC ( single and
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double circuit) lines. Single circuit 240 kV
lines are required to meet a 1 in 75 year
return period for environmental loading.
39. Given the volume and number of active facility
applications Suncor believes that ratepayers
do not have the capacity and the resources to
ensure adequate cost management, nor is it
their core business.
Given this Suncor suggests a broader and
more active role for the Transmission Facility
Cost Monitoring Committee (TFCMC) to act as
an effective watchdog and to work with the
TFOs to improve reporting, project monitoring
and cost accountability and management for
the benefit of all ratepayers. In order to
achieve this the Department of Energy would
need to ensure the TFCMC has sufficient
funding and resources to carry out and
expanded mandate.
AUC
40. The Commission agrees with how this
question is framed. As noted in section 4
above, participants in recent TFO GTA
proceedings have expressed concerns with
several aspects of current processes related to
transmission project cost controls.
39. The AESO will share Suncor’s comment
with the TFCMC as well as the DOE. The
AESO has been an active member of the
TFCMC since its inception and has
provided, and continues to provide,
information regarding transmission project
costs.
40. The AESO will engage in further
discussions with the AUC on these points.
The AESO will consider the issues raised
by the AUC in the development of any
recommendations for change.
For example, as discussed in AUC decision
2009-151, intervener concerns/suggestions
put forward in AltaLink’s 2009-2010 GTA
proceeding included the following:
- a postulated need for improved “value for
money” assessments of project inputs,
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especially when provided by service providers
affiliated with the utility
- suggestions that existing audit processes
need to be expanded and/or improved
- concern that assessments and/or audits that
the AESO and TFOs are already empowered
to conduct are actually being carried out, and,
if so, being applied with sufficient rigor
- concern about the lack of agreed upon
benchmarking as between projects with similar
characteristics
- the possibility of utilizing incentive
mechanisms contemplated in section 15.3 of
the HEEA to promote prudent project
execution practices
Similarly, as discussed in Decision 2011-453,
intervener concerns/suggestions put forward in
AltaLink’s 2011-2013 GTA proceeding
included the following:
- the possible need for expanded scrutiny of
direct assign forecasts given their role as a
baseline for evaluating final project
expenditures
- a suggested need to establish clearer criteria
for evaluating whether prudent project
management practices were followed
- discussion of the potential for and/or required
limitations on the conveyance of certain
information made available to members of the
TFCMC to the Commission for the use in the
Commission’s prudence assessment
processes
- possible improvements in project execution
performance metrics
- possible improvements in project control and
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progress and cost reporting systems
In both the 2009-2010 and 2011-2013 GTAs,
AltaLink provided extensive responses to the
comments and suggestions discussed above.
Themes addressed in AltaLink’s comments
included the following:
- several processes already in place act to
assure that expenditures on direct assign
projects are prudent
- that the Commission should balance
intervener concerns about the adequacy of
existing audit and cost reporting processes
with consideration of the cost and/or potential
disruptiveness of adopting alternate
processes.
ATCO Electric
41. ATCO Electric considers that the existing
regulatory framework, which combines the
responsibilities of the Commission, the AESO
and the Transmission Facilities Cost
Monitoring Committee (TFCMC), provides a
comprehensive scheme to control and monitor
costs. While refinements can be made to
improve the overall process, major changes to
the current structure are not required.
Measures that create additional administrative
burdens and result in duplication and
redundancy should be avoided. Finally,
respect for confidential commercial information
is essential to ongoing participation by
contracting parties.
41. The AESO will give due consideration to
ATCO’s views and suggestions in the
recommendation paper. ATCO has made
certain valid points which must in turn be
balanced with any proposals for change
and subsequent impacts on the regulated
TFOs.
As outlined in the AESO’s discussion paper,
the regulatory framework provides a clear
understanding of the roles of various players
and provides AESO with the authority to
design rules related to cost reporting that will
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facilitate the AESO having sufficient visibility of
TFO information to fulfill its mandate.
Any changes to the regulatory framework to
address specific concerns related to cost
accountability would require a holistic view of
the regulatory compact. The way that TFOs
are regulated under the existing legislative
framework ensures that TFOs, in exchange for
being able to recover prudently incurred costs
within the regulatory framework, are obligated
to provide services that support the safe and
reliable operation of a transmission network
and ensure that the AESO is appropriately
supported by TFOs to fulfill its mandate. While
concerns over cost escalation may warrant
review and discussion, caution should be
exercised to ensure that changes to address
cost accountability concerns do not expose
Albertans to a degradation in other areas of
the transmission service model.
The following checks and balances currently in
place are extensive and support the regulatory
model:
1. Opportunity for estimates at NID stage
2. Estimates at PPS stage
3. Estimate updates after final P & L
approval
4. Monthly cost reporting
5. Change management processes
6. Procurement Rules
7. Review by TFCMC of aforementioned
reporting on all projects > $100 million
8. AESO Rule compliance reviews and
(now) sanctions that could be applied
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by MSA for TFO failure to adhere to
rule
9. Minimum Filing Requirements for
regulatory tariff applications
10. Extensive regulatory process to test
reasonableness of forecast and
prudence of costs included in opening
rate base including the opportunity to
test reasonableness of estimates
during GTAs
11. Another opportunity during deferral
account filings to test prudence of
project costs going into rate base as
actuals.
In addition to obligations of TFOs outlined in
the AESO discussion paper related to cost
accountability, TFOs have significant
obligations under Section 39 of the EUA
(obligations to safe reliable operations of
assets, compliance to standards, practices
and procedures, including very compelling
wording related to following directions from the
AESO.)
The regulatory compact is structured to
balance the interests of all stakeholders
including TFOs, AESO and customers.
Significant changes to accomplish some
desired end state respecting cost
accountability, particularly changes that
contemplate a transfer of risk between
stakeholders cannot be viewed in isolation
since the current model respecting cost
accountability is an integral part of the overall
compact.
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Cost certainty involves risks and risk mitigation
comes with a price premium. Prior to adopting
any regulatory framework changes that may
increase risk to TFOs and others, a full
evaluation of the impacts of any proposed
model which purports to manage cost risk
must be undertaken, utilizing appropriate
expertise.
EDTI
42. The current legislative framework is adequate.
However, if the AESO wishes to review for
prudence of cost estimates and intended use
to improve the project implementation process,
then the regulatory framework likely needs
legislative amendment.
42. The AESO acknowledges that the AUC
has the legislative authority to assess the
prudence of TFO’s costs.
EDTI welcomes an opportunity to engage with
all stakeholders in determining clear and
appropriate cost estimate accuracy
requirements, an appropriate check and
balance framework for the monitoring and
reporting of project costs, and appropriate
processes for reviewing project scope,
schedule, and risk reviews over the entire
project life (project initiation to project
completion).
Discussion Paper – Section 8.2 – Uncertainty associated with cost estimating
Do stakeholders agree that the current requirements (i.e. as required by ISO and AUC rules) for cost estimates are still adequate for
large projects (i.e. over $100 million) that will be developed over a span of 5 to 10 years?
Stakeholder
Benign Power
Stakeholder Comment
43. NO. The flaw here is in the word estimates
which must be changed to fixed price bids
period. Estimates can be used up until the
project is ready to build. At that time fixed price
bids are required. If the project is delayed for
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AESO Reply
43. The AESO acknowledges the concerns
stakeholders have with respect to costs,
and more importantly cost overruns
associated with transmission projects. The
AESO is seeking input to enable the
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one year or longer then the bids can be
refreshed or a Consumer Price Index (CPI)
allowed and called for from the same five
firms. Answer 2. NO and furthermore there
should be no cost lower limit. It is submitted
that a cost overrun of 50%, 40%, 30%, 10% is
equally important to small customers as it is
big customers. Said another way why should
small load business, small generator business,
Martha & Henry, all Albertans be subject to
transmission costs abuse any more or less
than the monster corporations?
AESO to identify or propose subsequent
actions to improve the management of
transmission project costs. The current
legislative and regulatory framework does
not allow for the TFOs to submit a firm
price bid for a project proposal.
IPCAA
44. The AESO has initiated efforts internally to
44. IPCAA submits that the current requirements
for cost estimates are not adequate. There is a
develop processes to enable
need for detailed benchmarking of costs on all
benchmarking of transmission project
projects at the NID stage. All costs should be
costs. The AESO recently provided the
tracked against this estimate and all variances
TFCMC an update in regards to that
(by line item) need to be reviewed. Currently,
initiative. The AESO will continue its
the process allows for aggregating costs over
efforts to enhance its benchmarking
line items and including contingency as a cost,
capabilities and further keep the TFCMC
rather than as part of the +20%/-10% variance.
apprised of progress.
The reporting systems need to be improved for
better clarity and transparency.
AltaLink
45. The current ISO and AUC rules require the
TFO’s to provide a cost estimate with an
accuracy of plus 20 / minus 10 percent at the
time of the Proposal to Provide Service and at
the time of the Facilities Application filing.
There are multiple contributors to a
transmission project cost estimate such as
environmental, stakeholder and compliance
requirements, among other regulatory
requirements all of which impact in-service
timing, project scope and ultimately project
cost along the full lifecycle of transmission
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45. The AESO will consider AltaLink’s
comments and suggestions that an
industry working group be established to
further review this issue.
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project. Further detail is provided in the
attached cover letter “AESO Consultation on
Transmission Cost Accountability Altalink letter
Dec 9, 2011”
AltaLink would recommend through a crossindustry working group an assessment of the
required level of engineering and project
development needed to support estimating
accuracy based on Industry Standard
estimating classifications.
ADC
46. The AESO should look to private projects to
see what other industries tolerate for estimates
for long term projects – i.e. pipelines, large
industrial facilities such as an Oilsands project.
Cost escalation needs to be controlled–
projects can’t be built at any cost. If a private
sector project exceeded authorizations for
expenditures it would be shelved putting the
shareholder at risk for costs.
46. The AESO will consider ADC’s proposal
insofar as further proposals are advanced
in developing processes to enhance
estimating reliability. It must be
recognized, however, that there are
differences between a private project
proposed by a developer that can be
terminated (e.g. on the basis of insufficient
returns to the shareholder), to that of a
transmission facility that is deemed
essential to service a customer and one
that cannot be terminated without major
consequences to that customer. The
AESO (and TFOs) have an obligation to
“serve” and meet customer demands for
reliable electrical service.
Suncor
47. Suncor does not agree that the current cost
estimate requirements are adequate for large
projects.
47. The AESO will consider Suncor’s
suggestion in its development of
subsequent proposals for improvements.
The AESO is committed to working with all
industry stakeholders to develop and
implement improvements in cost
monitoring. The AESO is working closely
with the TFOs as well as the TFCMC to
The significant cost overruns in 2010 are proof
that the requirements are not effective in managing
cost effectively. Suncor recognizes the complexity
of transmission projects, however,within the
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discussion paper the AESO cites the theme of
continuous improvement in the area of transmission
planning. With this in mind Suncor suggests that the
AESO review the major project cost overruns from
2010, analyze the outcomes and publish the
findings for open stakeholder consultation, with a
view to developing key learnings to improve the
cost monitoring and management system going
forward. Considering the AESO is only 10% into its
planned long term spend Suncor believes this effort
would yield considerable benefit for all system
users.
AUC
improve efforts in cost monitoring and
reporting.
48. This question should be reformulated so that it
is not restricted solely to large multi-year
projects. As noted in section 2 and section 4,
the scope of this review should encompass all
direct assign projects, not just large projects
estimated to cost in excess of $100 million. As
well, the Commission agrees that the
reference to AUC rules that are currently in
effect is appropriate. As noted above, and in
the Commission’s covering letter, the
Commission is also considering changes to its
own rules but has suspended this process
pending the outcome of this review.
48. The AESO is proposing further
discussions with the AUC to ensure that
our efforts towards enhancing the
transmission cost management and
monitoring are effectively coordinated.
49. In the second paragraph, the AESO indicates
that forecasting a reliable/dependable cost
estimate for a transmission project is
challenging for several reasons, including
“regulatory processes.” This reference to how
regulatory processes impact forecasting
accuracy is not explained. It would be of
49. The AESO’s reference to “regulatory
processes” was in the context of potential
impacts to project costs that a regulatory
decision may impact, including impacts to
project schedule if a protracted regulatory
proceeding may result in a longer timeline
for executing a project. Additional
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The AESO agrees with the AUC insofar
that the review of processes to enhance
transmission cost management and
reporting is not intended to solely apply to
projects in excess of $100 million. Any
enhancements are expected to apply to all
projects, particularly if such
enhancements include proposed
amendments to the AESO’s current ISO
rules Section 9.1.
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assistance if the explanation of how regulatory
processes impacted forecasting accuracy
were to be expanded.
examples of impacts to project costs
resulting from regulatory decisions
include:
- changes in transmission line routing
from what was filed as preferred,
- modifications or alternative
transmission structures to mitigate
siting issues,
- additional mitigative measures as
directed by the AUC based on issues
raised during the course of a hearing.
The above is intended to provide an
illustration of the challenge of preparing a
reliable and reasonably accurate cost
estimate for the project. Project cost
estimates are subject to change despite
the reasonable best efforts on the part of
the TFOs. To a certain extent, the
application of a reasonable contingency
percentage to a cost estimate may be able
to account for regulatory decisions,
however not all considerations may have
been considered.
TransAlta
50. We appreciate that the quality of estimates
changes with the stage of the project, the size
of the project, and the efforts put into providing
the estimate. These must be reviewed by
looking at the consequences of excursions
outside the bounds of the estimate. The
bounds are intended to contain the final
completed cost of the project. That a project
exceeds the bounds of an estimate means the
estimate was inaccurate.
The question seems to be ‘what are the
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50. The AESO will forward TransAlta’s
comments to the AUC for their
consideration.
The AESO relies on the TFOs to provide
reliable cost estimates to enable the
AESO to determine or select an
appropriate transmission alternative to
meet the need. The AESO intends to
enhance its internal processes to enable
benchmarking to other projects (internal to
Alberta as well as external) to enhance its
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consequences of inaccurate estimates?’
Are the consequences of inaccurate
estimates, apart from other matters, a loss of
confidence and trust of members of the
industry and the public in such estimates? Is
this premised on perceptions that transmission
costs are ineffectually controlled?
ability to review a TFO’s cost estimates for
reasonableness.
Our view is that the completed project costs
are expected to fall within the estimate bounds
whether +/- 30% or +20%/-10% or +/- 10% or
whatever. If it doesn’t, why doesn’t it?
Is the inaccuracy then caused by not
appropriately and fully understanding the
scope of the project leading to scope creep?
Understanding the sources of scope creep
should allow such matters to be addressed
through better estimates. Regardless of
cause, inaccurate estimates may erode
confidence and trust; and the question is what
steps can be taken to improve estimates, their
use, and communication.
51. If the cost estimates for a project, as approved
by the AUC as part of a Facilities Application,
are to have meaning then when the completed
project costs exceed the cost estimate
boundary of +20% the AUC should initiate a
detailed prudency review. This could be part
of the tariff process or for transmission
facilities costs causing a 5% or more increase
to the ratebase, a separate process. It seems
reasonable to have a prudency review
threshold for transparency.
51. The AESO will forward TransAlta’s
suggestion to the AUC for their
consideration.
52. The AUC may also wish to consider
52. The AESO will forward TransAlta’s
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establishing different levels of estimate
variance required for various sizes of projects
with more restrictive estimates for larger
projects, e.g. +/- 10%.
ATCO Electric
53. The AESO rules were developed based on
broad stakeholder engagement and involved
TFOs, interested intervener groups, AESO
and consultant input with respect to managing
project costs and risks. Any enhancements to
the Rules to accomplish greater “cost
accountability” should only be made with the
engagement and advice of independent
experts with sufficient experience and
knowledge in managing large projects and
associated risks.
suggestion to the AUC for their
consideration.
53. The AESO agrees with ATCO’s first two
statements in this regard and will consult
with stakeholders prior to implementing
any amendments to its ISO rules.
The AESO will consider ATCO’s
comments when developing subsequent
proposals put forward in its
recommendation paper.
The current requirements involve a
progressive elaboration on project cost
estimates throughout the life of the project.
Estimates are prepared at the NID stage then
refined at the PPS stage and again once
routing considerations are finalized. At each
stage, updated estimates are provided to the
AESO so that the Need can be reaffirmed.
Significant time and effort is incurred to refine
project estimates at each stage. Additionally,
cost reporting provides the AESO with visibility
of the current cost forecast on a monthly
basis. Current requirements respecting cost
estimating align with generally accepted
project management processes and practices
for progressive elaboration. Imposing
additional requirements, either for the number
of cost estimates or for the accuracy of cost
estimates, will come with an associated cost
that needs to be supportable.
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EDTI
54. When a project’s actual cost differs from its
estimate, the question raised is whether the
most economical project was selected. The
answer lies in the selection process. All
projects begin with an identified need and
possible options to resolve. High level
estimates are put together for each option to
determine the most economical option that
meets the technical need. It is at this point the
decision needs to be made if further estimating
accuracy is required. If the respective
estimates are very close then further accuracy
would be required. If the estimate for an
acceptable technical solution is clearly more
economical, then further accuracy would not
be required. AESO determines the solution to
its need and it presently has the ability to
determine the required accuracy of the
estimate for an appropriate decision. In other
words, the AESO currently is able to direct
TFOs to provide a specific level of accuracy.
54. The AESO, as identified in the discussion
paper, has a business practice in place to
review the project alternative solutions if
the AESO receives a cost estimate from
the TFOs at the PPS stage that is outside
the bounds of the original +/-30% NID
class cost estimate. This practice is
intended to ensure the appropriate
transmission solution is advanced at a
reasonable cost.
55. One may have to look at possible refinements
to the cost estimate accuracy requirements to
appropriately reflect timing and variable cost
component risks (for example, cost risks
associated with commodity based cost items.
55. The AESO will consider EDTI’s comments
when developing subsequent proposals
for improvements in estimating standards.
The AESO agrees with ATCO’s comment
that should additional estimates, including
efforts to improve accuracy, be required,
the AESO has the authority to direct the
TFOs to prepare such estimates.
One may also have to consider a variable
framework for determining the magnitude of
project contingency amounts included in the
cost estimates (for example, higher %
contingency amounts for longer duration
projects).
Discussion Paper – Section 8.3 – Level of detail and transparency of transmission cost estimates
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Do stakeholders agree that the AESO’s current level of transparency related to transmission cost reporting is adequate? Should
more detail be provided in recognition of the concern that providing more detail may have a negative impact on competitive
procurement of materials and labour?
Stakeholder
ALSTOM Grid Canada
Stakeholder Comment
56. AESO could consider posting Final Cost after
construction compared to NID application.
AESO Reply
56. The AESO will consider ALSTOM’s
suggestion. The final costs are already
presented, and filed, with the AUC in the
TFO’s deferral account proceedings.
Benign Power
57. Answer NO. Question: Should more detail be
provided recognizing the concern that
providing more detail may negatively impact
competitive procurement? Answer: NO. In
both cases no one cares on post monitoring or
"beating a dead horse to go faster". If the
Honourable Minister, ADOE, AUC, AESO,
MSA, load business, generator business, bill
paying customers are all satisfied that the
lowest bidder conducted the work and the
lowest possible cost was obtained for the
required work then there are no concerns.
Moreover this competitive procurement was
tabled by AESO over two years ago and still
there is no concrete action or solution. It is
high time this issue gets resolved immediately
under the mandate of the New Honourable
Minister.
57. Please refer to the AESO’s web site at
http://www.aeso.ca/transmission/21684.ht
ml regarding details of the competitive
procurement process for Critical
Transmission Infrastructure.
IPCAA
58. IPCAA submits that the current level of
transparency is not adequate. All projects
should be estimated in detail, by major line
items, using benchmarks developed from both
in-province costs and from industry standards
across North America (adjusted for location
and climate).
58. The AESO will consider IPCAA’s
comments during the development of
further recommendations for change.
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With regard to disclosure of prices for
competitive procurement of materials and
labour, there is negligible risk with respect to
the competitive procurement processes from
providing these estimates. In fact, it may tend
to improve competitive bidding, because the
estimates will be seen as targets to beat.
Other jurisdictions provide this information and
the disclosure brings no harm. Alberta needs
to consider this as well.
It is difficult to conceive how increased
transparency can result in loss of competitive
procurement opportunities and the AESO
should undertake a review of competitive
procurement from the past three years to
determine if such is the case. This review
should include the targeted procurement, the
original estimate, the number of bidders, the
range of bids and the final result.
AltaLink
59. AltaLink has a strong record of providing
AESO with prompt progress tracking and
forecasting information. AltaLink is committed
to continue working with the AESO to develop
further reporting requirements, and will comply
with modifications to the ISO rules.
59. The AESO will consider AltaLink’s
comments as it develops its
recommendations for change.
The risk of disclosing cost estimate or actual
cost information to potential suppliers of goods
and services to AltaLink raises a concern that
these entities would know what they could bid,
potentially raising costs to ratepayers.
AltaLink would recommend through a crossindustry working group the merits and risks of
project transparency be fully discussed relative
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to labour and material supplier and future
competitive transmission facilities.
ADC
60. Actual project costs in significant detail should
to be tracked comparatively against forecast
costs at project milestones. Interested
persons should have access to information to
make an assessment if the costs were
reasonable and prudent. The AESO is in the
best position to fulfill this role. Perhaps the
AESO could engage an internal group to
actively audit each major project and report on
findings to the AUC at least once during the
project and at it’s completion.
60. The AESO will consider ADC’s
suggestions as it develops proposals for
change. The AESO is of the opinion that
these suggestions will need to be
discussed with the AUC as well.
Suncor
61. Suncor believes that a sufficient amount of
detail should be provided to allow bodies such
as the TFCMC the AESO, and independent
third party or system ratepayers to sufficiently
analyze the reasonableness of project costs
on a timely and ongoing basis. In the instance
where the case can be legitimately made that
release of data into the public domain would
compromise competitive procurement, this
data could be received by the TFCMC on a
confidential basis, as part of an expanded
watchdog role and mandate.
61. The AESO will consider Suncor’s
suggestions as it develops proposals for
change.
62. The Commission has no objection to the way
the question has been framed.
62. The AESO intends to discuss this further
with the AUC and determine if certain
“information sharing” between the TFCMC
and the AUC can be enabled within the
current legislative provisions.
AUC
As the Commission’s primary interest in this
review is focused on enhancing the materials
that may come before it to determine the
prudency of direct assign project costs, to the
extent that there are concerns regarding the
release of competitive information, the
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As well, the AESO continues to work with
the TFCMC to monitor and review major
project costs and trends.
The AESO will expand on this matter
when developing subsequent proposals
put forward in its recommendation paper.
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Commission has rules in place to protect
confidentiality of commercially sensitive
information.
Some interested parties participating in
proceedings to assess project prudence have
advised the Commission that insufficient
information is available at various stages from
planning to design to construction, and without
this information it is difficult to test the
reasonableness of cost incurred as required
by the Transmission Regulation.
The Commission has also expressed concern
about the need for additional information.
For example, in Decision 2008-108, the
Commission indicated that there may be
opportunities to utilize the rules developed by
the AESO in ISO Rule 9.1 for the purposes
contemplated in section 25(4) of the
Transmission Regulation. However, as section
25(5) of the Transmission Regulation
expressly precludes the Commission from
asking the AESO to make statements
regarding a TFO’s prudence in managing a
transmission facility project, the Commission
would have to be satisfied that the AESO’s
processes and requirements, which were
developed by the AESO for its own purposes,
are adequate for the Commission’s
requirements. For this reason, the
Commission considers that the information
that may be available through ISO Rule 9.1 or
any potential changes to this rule may also
serve the Commission’s prudence assessment
purposes and therefore should be assessed in
AESO Stakeholder Comment and AESO Reply Matrix: 2012-05-04
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the review process.
Also, in Decision 2011-453, the Commission
found that it has an interest in examining
whether the prudence assessment conducted
by the Commission may be improved or
simplified by accessing reports that may have
been prepared for or by the TFCMC. The
Commission also expressed an interest in
understanding whether, and if so how, TFCMC
oversight of some direct assign projects
should be taken into account by the
Commission in discharging its direct assign
prudence duties. As such, the process should
examine the extent to which TFCMC reports
could be incorporated in Commission
proceedings.
ATCO Electric
63. This issue must be viewed in the broader
context of the existing oversight and extensive
scrutiny already placed on Transmission
Capital Projects by the AESO, the TFCMC and
the AUC, as discussed above. Measures that
could negatively impact the willingness of
suppliers of materials and labour to freely
participate in the competitive procurement
process or which would cause such parties to
add premiums to their bids, must be
approached with caution. There is a concern
that extensive public disclosure could either
restrict participation or drive up bids due to the
disclosure of such commercially sensitive
information.
63. The AESO acknowledges ATCO’s
comments and agrees that these were
concerns tabled by the TFOs during the
original development of ISO rules Section
9.1.
Any proposals to amend ISO rules Section
9.1 must comply with AUC Rules and
would entail consultation with
stakeholders.
Whether existing levels of transparency of cost
reporting are adequate can only be gauged
with a clear view of what outcomes such
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transparency is expected to facilitate. There
are two distinct parts to this question.
The AESO relies on cost reporting disclosure
by TFOs to carry out its mandate to plan and
operate a safe and reliable transmission
network. The level of transparency required
for stakeholders to reasonably assess the
efficacy with which the AESO carries out its
mandate should be viewed separately and
distinctly from the level of transparency
required by stakeholders in relation to the
mandate of the AUC to assess TFO prudence.
The regulatory processes currently used to
assess TFO prudence involve an extensive
amount of disclosure and afford stakeholders
the opportunity to ask for virtually any
information they believe is required to test
prudence. Full disclosure of the cost
reporting specified under AESO Rules often
forms part of the record in regulatory
proceedings.
It is difficult to imagine a higher level of
transparency or what outcome a higher level
of transparency might accomplish.
The specifics of any proposed changes
contemplated by the AESO with respect to
transparency would need to be understood
and discussed. Assuming the current level of
transparency is sufficient for the AESO to
carry out its mandate, it is difficult to comment
on adequacy without specific data about
what’s not working and what additional
transparency is required. As outlined above,
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Public
the current level of transparency and
opportunity for regulatory testing is extensive.
Benefits and impacts, particularly to
competitive procurement processes, of
additional disclosure need to be thoroughly
understood before any changes are
considered. ATCO Electric would expect to
participate fully in any discussions on this
topic.
EDTI
64.
The existing level of transparency in respect of
transmission cost reporting is adequate.
64. The AESO acknowledges EDTI’s
comments..
EDTI shares the concerns of some other
stakeholders that providing additional project
cost estimating details may negatively impact
the competitive procurement of materials and
labour for transmission projects.
Discussion Paper – Section 8.4 – Competitive procurement of materials and labour per ISO rules Section 9.1.5
Do stakeholders agree that the current rules are achieving the desired outcomes? Do the ISO rules offer sufficient flexibility to enable
the TFOs to exercise procurement practices that lead to the lowest possible cost for a facility? What are the appropriate measures
that could be utilized to measure their effectiveness in terms of delivering a transmission project at the lowest possible cost?
Stakeholder
ALSTOM Grid Canada
Stakeholder Comment
65. AESO, AUC and TFO could consider Option 3
approach for conventional transmission
projects to be bid as Design Build /
Turnkey(Firm Pricing) for lines and separate
Design Build / Turnkey (Firm Pricing) for
substations by OEM. This is the model for
advanced transmission techniques presently
although needs to be revisited (refer
comments to Discussion Paper –
Transmission Cost Accountability) and
could be applied also for conventional
substations.
AESO Stakeholder Comment and AESO Reply Matrix: 2012-05-04
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AESO Reply
65. The TFOs already have the flexibility
within the current ISO rules to
competitively procure transmission
facilities on a “turn-key” basis.
Public
Benign Power
66. Are the current rules achieving the desired
outcomes? Answer NO. AESO are currently
still allowing "direct assignments" to
MONOPOLY TFO's with initial plus 50% to
minus 20%, later narrowed to plus 20% to
minus 10% as the final estimate only to TFO
"PPS'" proposal to provide monopoly dictated
service. Consider this; no matter if it is 50% to
10% over on a $100 million or one $billion
project it is a lot of money for Albertan citizen
shareholders to bear for fifty years where it is
hidden in the rate base and moreover where
only two major monopolies benefit. These are
not power lines built in Sicily. The fact that one
transmission line built under the existing
system was some 200% over
estimates/budget (estimate $87M to costing
some $200M) and proven by industry that
transmission in Alberta costs 3 to 4 times more
than many other jurisdictions USA particularly)
should be lesson enough that immediate,
urgent change is required by the Honourable
Minister before any more transmission lines
are built in Alberta.
66. The AESO acknowledges Benign Power’s
comments and concerns with respect to
transmission costs. It is noted that the
current legislative provisions, as well as
current ISO rules and regulatory
framework, obligates the AESO to direct
assign transmission projects to incumbent
TFOs, with the AUC having the authority
to conduct prudence reviews and approve
of final TFO costs that are applied to rate
base.
IPCAA
67. It is very difficult to determine if the current
practices are achieving lowest costs because
there is insufficient reporting of competitive
bidding details to review. A study should be
undertaken on 15 to 20 random procurements
to determine the number of bidders, price
ranges from bids and comparisons to
estimates. This sampling should include both
major TFOs and cover both materials and
labour.
67. IPCAA’s suggestion to carry out further
analysis on this matter will be considered
by the AESO in subsequent work.
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The AESO does monitor TFO compliance
to ISO rules Section 9.1.5 Project
Procurement with respect to the
competitive procurement of materials and
labour.
Public
The merits of self-supply (in-house) versus
outsourcing for some of the soft costs (such as
land assembly, local stakeholdering, etc) need
to be considered. Ratepayers are not
interested in paying double overhead costs to
outsource these projects, but if a TFO can
provide better value than the fixed price results
of a competitive process for some of these
costs, then there is merit in self-supply. In
effect, the TFO would be winning a
competitive process.
AltaLink
68. AltaLink would recommend clarification
through discussion with a cross-industry
working group that considers rules allowing for
mitigation/management of supply and/or
quality risks of materials and labour balanced
with lowest reasonable project cost.
68. The AESO will consider AltaLink’s
recommendation for further work and
analysis through a cross-industry working
group.
ADC
69. The AESO should consider benchmarking
owners costs as well as labour and materials.
The AESO should also consider benchmarking
whether the TFO’s are engineering to meet or
exceed the functional specifications and
reliability standards set out by the AESO, and
if they are exceeding, provided an assessment
of the cost of building to a higher standard
than required.
69. The AESO is carrying out benchmark
analysis of various TFO costs and
continues to enhance benchmarking
competencies. The AESO has provided
the TFCMC with updates as to the
progress in this regard.
70. Suncor does not agree that the current rules
are achieving the desired outcomes.
70. The AESO will discuss Suncor’s
suggestions with the AUC prior to making
subsequent recommendations for change
Suncor
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The AESO carries out an extensive review
of the TFO’s proposal (i.e. PPS) including
a close comparison to the AESO’s
functional specification requirements. The
AESO seeks clarifications from the TFO if
the TFO deviates from the requirements in
the Functional Specification.
Public
TFOs should be held to a higher standard in
terms of final costs versus initially approved
costs, particularly where scope changes, that
in the AESO’s or the TFCMCs view could
have or should have been anticipated,. In
either case the AUC should have the ability to
refer to this in its decision on prudency.
71. In addition Suncor favours the development of
post project development reports to record the
history and facts surrounding the development
of major projects and any associated cost
overruns and as a tool for continuous
improvement the benefit of all stakeholders in
improving cost management.
AUC
TransAlta
The Commission has no objection to the questions
as presently framed.
72. Procurement contracts for material and labour
would be expected to control the costs. As
contemplated with the Competitive
Procurement for CTI projects there should be
restricted changes to the costs based on
similar factors, e.g. route length changes.
Cost changes emanating from other than
these identified factors could be considered on
a case-by-case basis.
73. The TFO’s must effectively manage their
projects to control costs similar to and as if
they themselves were contractually bound by
a CTI Competitive Procurement style contract.
To aid transparency and to provide information
to assist in this ongoing discussion it would be
of interest to have a summarized/aggregated
listing and details of actual contracts as
awarded and as completed to better identify
AESO Stakeholder Comment and AESO Reply Matrix: 2012-05-04
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in practices.
71. The AESO is of the opinion that Suncor’s
suggestion has significant merit. The
AESO, together with input from the TFOs,
has carried out analysis of costs for
projects being reported on to the TFCMC
and provided this information to the
TFCMC.
72. The procurement practices are the
responsibility of the TFOs with the AESO’s
involvement limited as prescribed by ISO
rules Section 9.1.5. The AUC will
ultimately determine whether the TFO’s
practices were prudent on a given project.
73. The AESO notes that TFOs have made
direct presentations to the TFCMC in
regards to their procurement practices.
Ongoing discussions are taking place with
the TFOs and TFCMC in regards to
procurement practices.
TFOs are required, by ISO rules, to submit
a competitive procurement report to the
Public
ATCO Electric
those contractual areas/drivers which allow
cost increases and which may need changes
to contractual language to effectively manage.
Such procurement processes are the
responsibility of the TFOs, however, ensuring
effective contracting is done to control costs is
of interest to all parties.
AESO in conjunction with the submission
of the final cost report of a project. This
report provides some guidance to the
AESO in regards to any compliance
reviews the AESO may choose to carry
out in connection with ISO rules Section
9.1.5.
74. If a TFO cannot, based on their procurement
process, after AUC Facilities Application
approval undertake the project within the
bounds of the approved estimate then they
should seek an amendment to the approval for
a revised estimate. This estimate will
obviously be firmer that pre procurement
estimates.
74. TransAlta’s suggestion will be forwarded
to the AUC for their consideration.
75. The combination of the existing AESO Rules
and the present legislative provisions provide
an appropriate framework for the procurement
of required materials and labour. TFOs can
only engage in such procurement when the
relevant criteria have been met. The
combination of these existing measures
provides an appropriate measure of cost
discipline.
75. The AESO will consider ATCO’s
comments as the AESO develops its
recommendations.
In the present regime, ISO rules 9.1.5.2,
9.1.5.3, 9.1.5.4, 9.1.5.5, and 9.1.5.6 clearly
dictate the manner in which services and
materials are to be procured. The rules specify
the process that must be utilized (number of
bidders, arm’s length suppliers) and that the
lowest compliant bid must be selected.
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ISO rule 9.1.5.6 specifically outlines the
situations that would allow for sole sourcing.
ISO rule 9.1.5.10 requires the TFOs to report
on any use of any sole source service or the
use of the non-lowest compliant bidder.
EDTI
76. It may be helpful to examine current rules for
potential improvements. Some areas which
might warrant further discussion are:
 Interpretation of fully compliant bids and
under what conditions alternative bids
might be acceptable.
 Timing of tenders and conditions for
flexibility to current rules.
Possible rule enhancement to encourage
additional market capacity to be in place when
work is tendered.
77. Could the AESO please outline the legislative
jurisdiction for the AESO to review ex post
facto for lowest cost delivery given that section
25(1) of the Transmission Regulation only
says that cost estimates for TFO intended use
should be reasonable for the purpose of
making transmission system planning
decisions?
76. Should the AESO proceed with the review
of its existing ISO rules Section 9.1, the
AESO will engage the TFOs, and other
industry stakeholders, as necessary, to
provide input to any proposed
improvements.
77. The AESO acknowledges that the AUC
has the authority to conduct prudence
reviews of TFOs and ultimately approve of
any costs that are applied to a TFO’s rate
base.
T-Reg Section 26(1) requires the AESO to
make rules for the competitive
procurement of materials for transmission
projects to which the AESO has complied
through ISO rules Section 9.1 that was
developed following extensive stakeholder
consultation.
To the extent the AESO is charged with
planning the transmission system and
identifying proposals to meet a particular
need, the AESO must assess the
AESO Stakeholder Comment and AESO Reply Matrix: 2012-05-04
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estimated costs of such alternatives and
be able to select a solution that will be at a
lower cost than other alternatives.
Discussion Paper – Other Jurisdictions
Do stakeholders have any comments with respect to the discussion of challenges in other jurisdictions; including the paper prepared
for the AESO by The Brattle Group?
Stakeholder
ALSTOM Grid Canada
Stakeholder Comment
78. UK model for Design Build / Turnkey approach
could be considered for transmission projects.
AESO Reply
78. The AESO, through its development of a
competitive procurement process, has
examined the UK models. Please refer to
Appendix C in the following document;
http://www.aeso.ca/downloads/Competiti
ve_Process_Recommendation_Paper_Final
.pdf
IPCAA
AltaLink
The Brattle Report provides some interesting
insight into other jurisdictions and the AESO is
to be commended for assembling this
information.
79. Of note would be the use of North American
benchmarking for all projects – with suitable
adjustments for location, climate and reliability
standards in Alberta.
79. The AESO will continue to monitor
developments in other jurisdictions in
order to identify opportunities for
improvements as well as enhancing the
AESO efforts with respect to
benchmarking transmission costs.
80. Additionally, the AESO should track and
monitor changes in input costs to assist in the
prudency reviews by the AUC. This would
include changes in materials costs and labour
conditions to assist in determining if costs
increases are warranted.
81. AltaLink is interested in discussing challenges
80. The AESO will further discuss IPCAA’s
suggestion with the AUC.
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81. The AESO may further engage the TFOs
Public
in other jurisdictions. However, any meaningful
assessment of the merit or applicability of
practices in other jurisdictions requires a more
fulsome description of the relevant facts and
circumstances than has been provided.
to determine reasonable approaches with
respect to benchmarking Alberta
practices/costs to other jurisdictions. Any
such comparisons to other jurisdictions
must take into account at a minimum,
differences in market structure, regulatory
framework, legislative differences.
ADC
82. To the extent there are learnings or best
practices that are relevant in Alberta, these
should be examined to see if they have merit.
82. The AESO agrees with ADC.
TransAlta
83. Across the regions reviewed, the trend
appears to be for higher quality and tighter
cost estimates, for more frequent reporting for
deviations from estimates, and for an
emphasis on cost containment measures.
83. The AESO agrees with TransAlta’s
observation.
EDTI
84. One has to compare the legislative jurisdiction
and powers in other jurisdictions for similarities
and differences to Alberta as well.
84. The AESO agrees with EDTI’s suggestion.
Discussion Paper – Transmission Cost Accountability
Do stakeholders have any additional comments on the discussion paper?
Stakeholder
ALSTOM Grid Canada
Stakeholder Comment
85. Advanced Transmission techniques namely
FACTS, HVDC substations need Design
Build/Turnkey approach with TFO directly with
OEM as an Option 3 (assuming Option 1 to be
TFO/Own Alternative, Option 2 is EPC
Alternative) . Cost competitiveness can be
effected with this approach with minimizing
risk during execution as well as effective long
term service/maintenance contracts by OEMs
.A cost comparison can be carried out and
compared to review this option.
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AESO Reply
85. The AESO is aware that the TFOs in
Alberta have undertaken procurement
practices for certain transmission facilities
(e.g. SVCs’, HVDC convertor stations),
that involve delivery of a “turn-key” facility.
Public
This can be also applicable for conventional
substations.
Advanced Transmission techniques namely
FACTS, HVDC as well as Conventional need
Design Build approach (Firm pricing) with TFO
directly as an Option 3 (assuming Option 1 to
be . Cost competitiveness can be effected by
this approach.
IPCAA
ADC
No additional comments. As always, thank you
for the opportunity to provide comments.
IPCAA would be happy to discuss these
issues further.
86. The AESO needs to have a role in the tariff
applications and the Deferral account
applications for the TFO’s. The AESO is the
only party in a position to provide accurate
comments backed by facts on project
execution, cost control, prudence, and
functional specifications. See the excerpt
below from Decision 2011-453 pg 86 as an
example.
86. The AESO will be seeking to review the
AUC’s comments and suggestions in
order to ensure a coordinated approach
regarding the development of any
recommendations for change.
From Decision 2011- 453 Altalink GTA:
6.1.2 AESO participation
440. In the ADC Rosenberg evidence, Dr.
Rosenberg submitted that the AESO should
be made co-applicant in any future
proceedings examining AltaLink applications
for rate relief, particularly for applications that
are heavily dependent on direct assign
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projects.
441. Dr. Rosenberg explained that as a
consequence of Alberta’s restructuring
away from vertically integrated utilities,
interveners have become frustrated in their
attempts to “get the whole picture” in
order to understand significant cost increases.
In this regard, Dr. Rosenberg submitted that
AltaLink did not respond to certain questions
posed during the GTA proceeding on the basis
that the subject matter of the questions was
within the purview of the AESO, even though
the provision of the requested information
could shed light on the reasonableness of
projected costs.
442. Dr. Rosenberg expressed particular
concern that, while the AESO has
responsibility for determining the required inservice date for both CTI and non-CTI direct
assign projects, it was not possible to
ascertain more information about in-service
dates beyond what is publicly posted on the
AESO’s website. Conversely, if the AESO
had been a co-applicant, it would have had to
directly respond to information requests
regarding the need and timing of projects or
about the reasonableness of costs incurred or
projected to be incurred by AltaLink.
443. In argument, AltaLink submitted that the
AESO has responsibility for the scope and
development of major direct assigned
transmission projects and that it is in
continuous interaction with AESO staff.
AltaLink submitted that it prepares a PPS for
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the AESO which must meet AESO
requirements, including requirements
respecting cost estimates. AltaLink also noted
that under AESO rules, it is required to provide
regular monthly reporting and updating of PPS
documents, including cost forecasts.
444. No other interested parties commented
on this matter in argument or reply.
Commission findings
445. The Commission agrees with the concern
expressed by Dr. Rosenberg that the absence
of the AESO in this proceeding created
difficulty for the Commission when assessing
the reasonableness of certain AltaLink
forecasts.
446. As discussed above, the Commission has
expressed some concern related to differing
evidence on the matter of in-service dates and
whether there is any flexibility with respect to
meeting these dates. Further, AltaLink’s
operating expense forecasts included
significant increases for operating FTEs,
contracted manpower costs and general
operating expense, in part, on the basis that
these increases were required to comply with
revised Alberta reliability standards
established by the AESO. The Commission
does not dispute AltaLink’s responsibility to
comply with Alberta reliability standards and
no specific disallowances have been made to
AltaLink’s forecast where AltaLink asserted in
its evidence that it must comply with the
AESO’s Alberta reliability standards.
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However, AltaLink’s estimates regarding the
specific resources and corresponding costs
identified by AltaLink as being necessary to
achieve this compliance, could not be
adequately tested without the presence of the
AESO.
447. The Commission may request the AESO
to provide evidence or otherwise participate in
future AltaLink tariff proceedings to address
issues of this nature. However, in this event,
the appearance of the AESO will not be as a
co-applicant, as suggested by Dr. Rosenberg.
ENMAX
87. ENMAX appreciates the opportunity to
participate in the consultation process and
recognizes the steps the AESO has taken to
address the transmission cost accountability
framework. It is, in ENMAX‟s view,
disappointing that the discussion will not
include the Critical Transmission Infrastructure
(CTI) projects however ENMAX acknowledges
that the regulatory framework for CTI is not of
the AESO‟s making. ENMAX is generally
supportive of the direction the AESO is taking.
TransAlta
88. The Discussion Paper does not touch on the
incentives and disincentives for a TFO to
control costs.
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87. The AESO would like to emphasize that
the only CTI project excluded from the
discussion is the Fort McMurray 500 kV
transmission line project given that a
competitive procurement process is being
developed to advance the project. The
other CTI projects, as identified in the
Schedule of the EUA, continue to be
applicable to this review. The
implementations of these projects are fully
subject to the AUC’s oversight in regards
to siting, as well as the ISO’s rules
associated with cost reporting, materials
procurement, etc.
88. The TFOs are subject to an AUC
prudence review of project costs and
determination of costs that will be
permitted to be applied to a TFO’s rate
base. TFOs are at risk of disallowance of
costs if found to be imprudent, and further
are at risk of being awarded a lower rate
of return. TFO’s costs are reviewed by the
Public
AUC during the course of a General Rate
Application and Deferral account
proceeding.
ATCO Electric
EDTI
89. In addition the paper alludes to efforts in the
form of Competitive Procurement for CTI
projects and the consultation on Market
Participant Choice. These would allow other
than regulated TFO’s to build, own, and
operate transmission facilities premised in part
on invoking competitive processes rather than
regulatory processes to contain costs. As
such, without directly saying it, is it not implied
that TFO’s do not appear to have adequate
incentives or disincentives to control costs?
Should some form of competitive procurement
be used for all transmission projects rather
than direct assign to the incumbent TFO?
There are many questions that will come
forward as this ongoing discussion on cost
control continues within the industry.
90. The transmission grid in Alberta is in serious
need of reinforcement and, although ATCO
Electric is generally supportive of a review to
ensure the adequacy of existing processes,
the introduction of uncertainty or changes that
cause rework, process confusion or delays to
projects in process will seriously impair the
industry's ability to meet the very real
requirements of the transmission network in a
timely manner.
89. The questions posed by TransAlta are
broad questions and supports the review
of transmission cost accountability.
91.
91. The AESO will continue to advocate a
joint filing of NID and Facility Application,
where appropriate.
The AUC permits the joint filing of a NID and a
Facility Application. Different and increasing
levels of detail for cost estimates in respect of
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90. The AESO agrees with ATCO’s comments
insofar as “The transmission grid in
Alberta is in serious need of
reinforcement…”. The AESO is of the
opinion that the current review of the
transmission cost accountability is
essential given the concerns expressed by
rate paying stakeholders in regards to
rising costs. This review should not impair,
but rather enhance, the AESO’s ongoing
obligations to meet industry requirements
for a reliable transmission system.
Public
each application will likely limit the ability of a
TFO to utilize the joint filing process.
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