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IGElectricity Market Investment Group

Setting Payments Amounts for Output from

OPG’s Prescribed Generation Assets

OEB (EB-2006-0064)September 15, 2006

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Introduction

EMIG thanks the Board and Staff for early consultation.

With the IPSP coming before the Board, the Board will have broad, new responsibilities which affect all of the Ontario electricity sector.

This decision regarding the payment mechanism for OPG’s prescribed assets, which is 40% of the Ontario power capacity, is a key decision affecting the overall structure of the electricity sector.

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The Hybrid Market – What Is It?

There are RPP customers, and “market customers”, who principally rely on markets (spot, forward) for short, intermediate and long-term market based price plans.

There is a state owned generator and private sector generators, each helping to meet customer demand and needs.

The public ownership of OPG generation is not the issue. The role of OPG prescribed output in meeting the hybrid market objectives is the question.

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G OPG generation output dominates the market as a whole. OPG prescribed asset output is the single largest and most important source of continuously available power.

In a hybrid model, OPG generation and other generators live in a symbiotic relationship. Each needs the other to meet customer needs, both RPP and non-RPP customers needs.

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The Hybrid Market…

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Role of the OEB

OEB has an obligation to consider the impact on the broader electricity market in determining the payment methodology.

OEB has an obligation to ensure the chosen methodology is consistent with:

Hybrid model Wholesale and retail competition Market-based generation investment

(not backed by OPA or ratepayers)

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Hybrid Model In Transition

Next steps include:

Greater role for the private sector in generation development and assumption of risk

Generation competition A market open to all customers with a wide

range of products Reduction of OPA to a procurer of last resort

To achieve these goals, output from OPG’s prescribed assets must be available as customer demand for market solutions grows.

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Government Supports Forward Market

“Another aspect of the market that is currently underdeveloped is forward contracting… Making the markets work for all consumers requires the availability of a variety of flexible products and services.”

-Minister Duncan, Speech to the Canada-Europe Roundtable for Business (May 31, 2005) – (Emphasis Added)

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The Balancing Act

Ineffective regulation – directly or indirectly inhibiting the availability of OPG power to the market – inhibits private sector investment risk assumption for new generation.

OEB Act (1998) and O. Reg. 53/05 are largely not prescriptive, leaving room for the OEB to use discretion within the overall legislative framework that supports a hybrid model.

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OPA: Procurer of Last Resort

OEB must recognize OPA’s legislated mandate to “reduce reliance on procurement”:

Integrated Power System Plan Regulation requires OPA to reduce its procurement role by creating conditions that facilitate market-based investment.

It is important that any decision here be consistent with the OPA’s objectives, and not inadvertently undermine the IPSP.

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Preferred Methodology

Regulated contracts approach is the best option for incenting OPG to participate in a forward market and for supporting the Government’s objectives for reducing the OPA’s role and facilitating competitive market-based generation.

TransAlta will address this issue in its presentation.

EMIG thanks the Board for the opportunity to make this presentation.

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IGElectricity Market Investment Group

Setting Payments Amounts for Output from

OPG’s Prescribed Generation Assets

OEB (EB-2006-0064)September 15, 2006