AESO 2017 Business Plan and Budget Review Process Stakeholder - - PowerPoint PPT Presentation

AESO 2017 Business Plan and Budget Review Process

Stakeholder Consultation Summary Presentation October 13, 2016

2017 Budget Review Process

• Amended process for 2017 Own Costs and Capital budgets

– Preparation and approval by December 2016 of 6-month budget for January to June 2017 – Allows for additional time for more details on the government’s policy initiatives to become available – Followed by efficient stakeholder consultation in near term incorporating any AESO impacts – Consultation will begin in March 2017 for a detailed 18-month budget for the period from July 2017 to December 2018

• AESO Board approval by June 2017
• Standard process for 2017 Transmission Operating Cost

forecasts

– Preparation and approval by December 2016 of a 12-month forecast for 2017

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2017 and 2018 Budget Review Process Summary

3

Q4 2016 Consultation Q1/Q2 2017 Consultation

Stakeholder Consultation Process Written process given limited new information Consistent with prior years’ process for full stakeholder engagement and technical meetings Business Plan and Budget Proposal Abbreviated document Comprehensive document Business Initiatives Continuation of existing initiatives Detailed review and consultation with stakeholders Transmission Operating Costs Prepare and approval for 12- month forecast for 2017 Prepare and approval for 12- month forecast for 2018 Own Costs and Capital Jan to Jun 2017 budget based

• n 2016 approved budget

Detailed review and consultation with stakeholders for the period from Jul 2017 to Dec 2018

Presentation of 2017 Information

• Additional information to the following PowerPoint

presentation is provided in the Word document titled ‘Supplementary 2017 Forecast and Budget Information’

• In the absence of in-person stakeholder meetings, this

information provides the details that would have otherwise been disclosed through verbal discussion

• The Word document has been cross-referenced to the slide

numbers in this presentation for ease of reading

4

2017 Business Initiatives

Business Initiatives Summary

• Presentation of the major strategies and initiatives (i.e.

AESO’s business priorities)

• For the period from January to June 2017, these are the

carryforward initiatives presented to stakeholders in prior consultation processes

• Additional information on 2016 achievements and 2017 plans

is provided in the following slides

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Business Initiatives Supporting Strategic Objective 1 – Framework

7

Business Initiative Expected Achievement 2016 Plans 2017 Market Evolution – Ongoing assessment of market design, structural elements and implementation of related changes Climate Change Program Design, Consult, Implementation Renewable Electricity Program (REP) Government of Alberta (GoA) endorsed; AESO positioned to open first competition in Q4 or in line with revised GoA timelines; Commencement (first stage) of first competition Framework monitoring, assessment of proposed changes and related recommendations Design, Consult (rules development), Implementation Implement first REP competition (Round 1) and identify winning bidders Framework monitoring, assessment of proposed changes and related recommendations Market Initiatives Consult, Design and Implement Determine the integration plan for new products and/or technologies (e.g. operating reserve amendments, technical standards and tariff provisions); Implement plan - Storage, Mothballing and Intertie Restoration inflight Implementation Tariff provisions for storage to be filed as part of the next General Tariff Application (GTA) in 2017 Other new products/technologies to continue Market Systems Replacement - Replacement and/or reengineering of market systems determined to have reached end-

• f-life

Market Systems Replacement and Reengineering (MSR) Implementation Complete MSR System reliability components (short-term sustainment) Implementation (future sustainment iterations) Continuation of future sustainment initiative

Business Initiatives Supporting Strategic Objective 1 – continued

8

Business Initiative Expected Achievement 2016 Plans 2017 Tariff and Technical Standards Enhancements 2017 General Tariff Application (GTA) Consult and Design Major components include how energy storage will be managed in the tariff, Section 8 (customer contributions) changes and cost/causation study Implementation File GTA with AUC Technical Standards and Rules Consult, Design and Implement Prioritization and Advancement of Loss Factor rule; Alberta Reliability Standards (80 new standards and revisions required); and Technical Rules (Customer Connection, Substation, Transmission Line and Metering Rules) Consult, Design and Implement Continue to advance Loss Factor rule, Alberta Reliability Standards and Technical Rules Major Projects – Design, development and deployment activities for projects having notable industry impact Advancement of the Fort McMurray West (FMW) Project (Formerly referred to as CP Integration) Design, Implementation AESO regulatory proceedings involvement where applicable; Continued Project integration; Preparation for Debt Funding Competition (DFC) Implementation Develop programs to manage the FMW Project post energization; Implementation of DFC

Business Initiatives Supporting Strategic Objective 2 – Value

9

Business Initiative Expected Achievement 2016 Plans 2017 Reliability Program – Facility, process and technology enhancements to improve grid reliability Energy Management System (EMS) Upgrade Implementation Replacement infrastructure procurement and configuration; Factory Acceptance Testing complete Implementation Production implementation by July 2017 System Control Centre (SCC) Facility Expansion Implementation Complete definition phase including all preliminary approvals; Subject to Board approval, commence implementation phase and develop schedule Implementation Continue implementation phase – RFP, permit applications, other as required Security – Critical Infrastructure Protection (CIP), Information Technology (IT) and cyber security enhancements Alberta Reliability Standards CIP Implementation Implementation Develop internal CIP process and procedure requirements; Establish compliance approach for monitoring market participants and guidance on preparing compliance evidence Implementation Complete internal compliance requirements and related audits; Set up market participant compliance program IT and Cyber Security Advancements Implementation IT and Cyber Security advanced in accordance with AESO business plan Implementation Continue to advance IT and Cyber Security program

Business Initiatives Supporting Strategic Objective 3 – People

10

Business Initiative Expected Achievement 2016 Plans 2017 Advance maturity level of our Human Resources processes Workforce capabilities - expanded Design, Implementation Increase workforce capabilities by broadening knowledge (AESO and industry) across the

• rganization; Program development of cross

functional practice and learning opportunities realized; Enhance learning and development programs to meet future needs as identified in strategic plan; Establish broader exposure and a comprehensive understanding of corporate skills and competencies required in the future Design, Implementation (2015-2018 HR strategy and roadmap roll

• ut) – continued from 2016

2017 Transmission Operating Cost Forecast

AESO Disclaimer

The information contained in this document is published in accordance with the AESO’s legislative obligations and is for information purposes only. As such, the AESO makes no warranties or representations as to the accuracy, completeness or fitness for any particular purpose with respect to the information contained herein, whether expressed or implied. While the AESO has made every attempt to ensure the information contained herein is timely and represents a reasonable forecast, the AESO is not responsible for any errors or omissions. Consequently, any reliance placed on the information contained herein is at the reader’s sole risk.

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Operating Cost Forecast Summary

($ millions) 2017 Forecast 2016 Projected 2016 Forecast 2015 Actual Wires Costs 1,864.8 1,802.5 1,684.8 1,596.0 Ancillary Services 118.9 93.1 182.6 171.3 Transmission Line Losses 74.1 44.4 111.9 75.8 Other Industry Costs* 23.2 22.4 22.8 22.6 TOTAL 2,080.9 1,962.5 2,002.1 1,865.7

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Pool Price (per MWh) $32 $21 $41 $33

* Includes transmission and energy market costs Forecast – current estimate of future costs Projected – current estimate of current year costs based on actual costs as of August 2016 combined with a forecast for the remaining four months of the year

2017 Pool Price Forecast

Price Forecast for 2017

• Hourly pool price forecast is an integral input into calculating

the forecast costs for ancillary services and transmission line losses

• AESO in-house generated hourly pool price forecasts from

2013 to 2016 for BRP forecasting purposes

• For 2017 BRP, the 2017 hourly pool price forecast is
• btained from the EDC Associates’ Q3 2016 Update Report
• Decision to use the EDC forecast was due to competing

AESO priorities for staff resources

• EDC hourly pool prices were used in 2012 and prior BRP

forecasts; they are considered as a reliable industry information source

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Price Forecast for 2017 (continued)

• The EDC Associates’ Q3 2016 Update Report pool price

forecast includes the following:

– A trend for more generators to run closer to variable cost – No impact to 2017 from the accelerated coal retirement plan – Carbon price increases

• As of September 29, 2016, the 2017 forward market price*

aligns to the EDC forecast at $32/MWh

16

EDC Forecast 2017 Forward Market * 2017 Projected 2016 Average Hourly Pool Price (per MWh) $31.82 $31.50 $20.82 AECO-C Natural Gas Price (per GJ) $2.73 $2.71 $1.92

* Source: NGX (Sept 29, 2016)

Actual and Forecast Prices and Heat Rate

17

11.58 10.08 8.79 8.23 13.99 11.45 12.16 13.15 13.63 22.39 28.10 27.50 12.75 13.07 10.84 11.66 $3.84 $6.30 $6.19 $8.27 $6.17 $6.10 $7.73 $3.76 $3.79 $3.44 $2.27 $3.01 $4.25 $2.56 $1.92 $2.73 $43.93 $62.99 $54.59 $70.36 $80.79 $66.95 $89.95 $47.81 $50.88 $76.22 $64.32 $80.19 $49.42 $33.34 $20.82 $31.82

20 40 60 80 100 120 5 10 15 20 25 30

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E

Pool Price Heat Rate, Gas Price Market Heat Rate (GJ/MWh) Gas Price ($/GJ) Pool Price ($/MWh)

5 10 15 20 $0 $15 $30 $45 $60 25 50 75 100 125 150 175 200 225 250 275 Daily Price ($/MWh) Day of Year Daily Price ($/MWh) Annual Average Price ($/MWh)

$17.02 as of 30‐Sep‐2016 $16.42 excluding highest 10 days

Price Duration Curve Year-to-Date September 2016

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This graph indicates the impact of high daily pool prices on the annual average. In past years, a few days of high prices had a material impact on the annual average pool

• price. This is not the case for 2016, which has

not had any high pool price days.

Average Price ($/MWh)

2017 Load Forecast

Load Forecast Assumptions

• The 2017 load forecast was prepared by the AESO for the

purpose of the BRP and has considered:

– Alberta GDP, population and labor predictions from the Conference Board of Canada Outlook (June 2016) – Historic weather patterns (40-year average temperatures)

• 2017 load is forecast to increase by 2% from 2016 projected

values, which would be consistent with 2015 volumes

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Load Forecast

21

2016: i) Lower actual volumes in May and June 2016 are associated with the Fort McMurray fires; ii) decreases in other months when comparing 2016 to 2015 relate to economic impacts and temperature variances. 2017: Based on the outlook for 2017 for Alberta’s GDP and key indicators from the Conference Board of Canada, it is expected that load volumes will return to the 2015 levels during 2017.

2017 Wires Cost Forecast

Wires Costs Summary

($ millions) 2017 Forecast 2016 Projected 2016 Forecast 2015 Actual 2015 Forecast Wires

1,859.4 1,797.4 1,679.3 1,591.0 1,367.7

Invitation to Bid on Credit (IBOC)

1.9 1.9 1.5 1.4 1.5

Location Based Credit Standing Offer (LBC SO)

3.5 3.2 4.0 3.7 4.5

TOTAL

1,864.8 1,802.5 1,684.8 1,596.0 1,373.7

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• Wires costs are the amounts paid to TFOs in accordance with their AUC-

approved tariffs and are not controllable costs of the AESO

• IBOC and LBC SO programs are long-term contracts that were initiated in 2001

and 2002 as incentives for generation to locate closer to major load centres

• IBOC costs are forecast to increase in 2016 and 2017 relative to previous years

due to anticipated facility operating operating conditions

• LBC SO costs are forecast to be lower than 2015 due to reduced dispatches

2017 Ancillary Services Cost Forecast

Ancillary Services Costs Summary

($ millions) 2017 Forecast 2016 Projected 2016 Forecast 2015 Actual 2015 Forecast Operating Reserve (OR) 88.2 64.3 147.1 137.3 130.5 Load Shed Service for Imports (LSSi) 18.1 19.0 20.0 17.4 25.0 Contracted Transmission Must-run (TMR) 2.8 n/a n/a n/a n/a Conscripted Services (OR and TMR) 2.0 2.0 4.0 9.7 3.0 Reliability Service 2.9 2.9 2.9 2.1 2.1 Poplar Hill 2.8 2.8 2.5 2.6 2.5 Blackstart 2.1 2.1 2.1 2.1 5.0 Transmission Constraint Rebalancing (TCR) 0.1 0.1 4.0

• n/a

TOTAL 118.9 93.1 182.6 171.3 168.1

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Refer to the Word document for additional details Pool Price (per MWh) $31.82 $20.82 $40.99 $33.34 $41.49 Gas Price (per GJ) $2.73 $1.92 $3.29 $2.56 $4.07

Forecast Methodology Operating Reserves (OR)

Forecast OR costs is the sum of forecast hourly volumes multiplied by the hourly OR price

• ∗

,

• Volumes: set by Alberta Reliability Standard requirements and

dependent on forecast generation

• OR Price: hourly price of operating reserves determined for each

product type

• There are no changes to the methodology in preparing the

2017 forecast

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2017 Transmission Line Losses Cost Forecast

Transmission Line Loss Costs Summary

28

2017 Forecast 2016 Projected 2016 Forecast 2015 Actual 2014 Actual Cost ($ million) $74.1 $44.4 $111.9 $75.8 $119.5 Volume (GWh) 2,291 2,235 2,577 2,325 2,472 Pool Price ($/MWh) $31.82 $20.82 $40.99 $33.34 $49.42

Forecast Methodology Line Losses

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Forecast transmission line losses costs is the sum of hourly volumes multiplied by hourly pool prices

∗

• Volumes: 5-year historical actual losses volumes as a

percentage of demand and forecast load volumes

• Pool Price: hourly pool price provided by EDC
• There are no changes to the methodology in preparing the

2017 forecast

2017 Other Industry Forecast

Other Industry Costs Summary

($ millions) 2017 Forecast 2016 Projected 2016 Budget 2015 Actual 2015 Budget AUC Fees – Transmission 12.6 12.1 12.0 12.5 14.0 AUC Fees – Energy Market 6.9 6.6 7.0 6.8 7.2 Regulatory Process Costs 1.5 1.3 1.7 1.4 2.0 WECC/NWPP* Costs 2.2 2.4 2.1 1.9 1.2 TOTAL 23.2 22.4 22.8 22.6 24.4

* Western Electricity Coordinating Council / Northwest Power Pool

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2017 Own Costs

Jan to June 2017 Own Cost Budget

• Amended process for 2017 Own Cost budgets

– Preparation of January to June 2017 for approval by December 2016 – Allows for additional time for more details on the government’s policy initiatives to become available – Followed by efficient stakeholder consultation in near term incorporating any AESO impacts – Subsequent BRP for the remaining 6 months of 2017

• For simplicity, 6-month budget proposed equal to half of 2016

approved G&A, interest and amortization budgets

• This approach will allow for continued focus on current

initiatives with no material changes to occur prior to subsequent budget approval for July 2017 onward

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Own Costs Summary

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($ millions) 2017 Budget (6 months) 2016 Projected YTD August 2016 2016 Budget 2015 Actual 2015 Budget

General & Administration 49.7 98.0 64.2 99.4 93.4 94.0 Interest 0.2 1.7 1.1 0.4 0.4 0.3 Amortization 12.2 23.0 15.3 24.4 26.0 26.9 TOTAL 62.1 122.7 80.6 124.2 119.8 121.2

2017 Capital Budget

Jan to June 2017 Capital Budget

• Proposed budget for 6 months of $15.4 million
• Current assessment for the full year of 2017 would be a

capital budget requirement of $31.5 million, however 6-month funding will be requested with further assessment to occur during the July 2017 to December 2018 BRP

• No major projects that have not previously been discussed

with stakeholders have been included

• Jan to Jun 2017 funding will enable continued progression on

the inflight projects and maintenance of base load initiatives

• Proposed budget is based on an allocation model applied to

the current assessment for the full year of 2017

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Capital Budget Summary

Definitions: Key Capital Initiatives – Most critical projects that the AESO believes must be completed within the timeframe identified Other Capital Initiatives – Other projects that have more flexibility in planning or delivery so timing is not as critical Life Cycle Funding – Hardware replacements (end of useful life) and recurring software upgrades and leasehold improvements

2017 2017 2016* 2016 2015 Budget Budget Projected Budget Actual

(6 months) (Estimate)

Key Capital Initiatives 8.0 3.5 5.3 10.1 Other Capital Initiatives 4.1 3.9 5.3 3.5 Life Cycle Funding 6.7 5.6 6.6 3.1 Sub total 8.1 18.8 12.9 17.1 16.7 Special - MSR

• 2.4

2.5 4.6 Special - EMS 3.9 5.9 16.4 17.2 7.3 Special - SCC 3.4 6.8 0.8 1.3

• Sub total

7.3 12.7 19.6 21.0 11.9 Total 15.4 31.5 32.5 38.0 28.6

*Aug 31, 2016

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General capital costs in 2016 projected to be $4.2 million lower than budget mainly due to an Oracle environment refresh that was deferred

2017 Capital Budget – Estimate

Capital Expenditures ($ million) 2017 2016 2016 2015 Estimate Projected1 Budget Actual Key Capital Initiatives

• 1. Reliability (EMS2 elements)

0.5 0.2

• 6.0

Reliability (other - non EMS elements) 0.4 0.8 0.7 0.4

• 2. Critical Infrastructure Protection

0.1 0.2 0.7 0.3

• 3. IT & Cyber Security

2.7 1.6 2.5 0.6

• 4. MSR3 - Sustainment

3.0

• 5. Market Evolution

0.1 0.2 0.5 2.1

• 6. Intertie Framework

0.3

• 0.3

0.4

• 7. Cost Accountability
• 0.0

0.2

• 8. Technology Review (website refresh)
• 0.5

0.6 0.1

• 9. Facilities

1.0

• Total Key Capital Initiatives

8.0 3.5 5.3 10.1 Other Capital Initiatives 4.1 3.9 5.3 3.5 Life Cycle Funding 6.7 5.6 6.5 3.1 SubTotal Capital 18.8 12.9 17.1 16.7 Major - EMS 5.9 16.4 17.1 7.3 Major - MSR

• 2.4

2.5 4.6 Major - SCC4 6.8 0.8 1.3

• Total Capital

31.5 32.5 38.0 28.6

Differences are due to rounding

1 August 31, 2016. Spent plus estimate to complete for current year. 3 Market System Replacement & Reegineering (sustainment activities only) 2 Energy Management System 4 System Coordination Centre Expansion

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2017 Energy Market Trading Charge

Proposed Energy Market Trading Charge

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Trading Charge Components (¢ per MWh) Jan to Jun 2017 Proposed 2016 Actual AESO Costs 26.2 26.2 Energy Market Deficit / (Surplus)

• AESO Component

26.2 26.2 AUC’s Portion of Energy Market Administration Fee 5.3 5.3 Total 31.5 31.5

• Proposing to continue with the current AESO portion of the

energy market trading charge until July 1, 2017

• January 1, 2017 trading charge may change due to the

Market Surveillance Administrator (MSA) component which will be communicated to the AESO in the latter part of 2016; there was no MSA charge (or refund) in 2016