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AESO 2017 Business Plan and Budget Review Process Stakeholder Consultation Summary Presentation October 13, 2016
AESO 2017 Business Planand Budget Review ProcessStakeholder 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
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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 on 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
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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 InitiativesSupporting Strategic Objective 1 – Framework
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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 proposedchanges 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-of-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 InitiativesSupporting Strategic Objective 1 – continued
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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 impactAdvancement 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 Projectpost energization; Implementation of DFC
Business InitiativesSupporting Strategic Objective 2 – Value
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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 Testingcomplete
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 InitiativesSupporting Strategic Objective 3 – People
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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 organization; 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 out) – 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
Forecast2016
Projected2016
Forecast2015
Actual
Wires Costs 1,864.8 1,802.5 1,684.8 1,596.0
Ancillary Services 118.9 93.1 182.6 171.3Transmission 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 obtained 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
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EDC Forecast
2017
Forward Market *
2017
Projected2016
Average Hourly Pool Price (per MWh) $31.82 $31.50 $20.82AECO-C Natural Gas Price (per GJ) $2.73 $2.71 $1.92
* Source: NGX (Sept 29, 2016)
Actual and Forecast Prices and Heat Rate
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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
$31.82
0
20
40
60
80
100
120
0
5
10
15
20
25
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E
Pool Pric
e
Heat R
ate, Gas Pric
e
Market Heat Rate (GJ/MWh) Gas Price ($/GJ) Pool Price ($/MWh)
0
5
10
15
20
$0
$15
$30
$45
$60
0 25 50 75 100 125 150 175 200 225 250 275
Daily Pric
e ($/M
Wh)
Day of Year
Daily Price ($/MWh) Annual Average Price ($/MWh)
$17.02 as of 30‐Sep‐2016$16.42 excluding highest 10 days
Price Duration CurveYear-to-Date September 2016
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This graph indicates the impact of high daily pool prices on the annual average. In past years, a few days of high prices had a material impact on the annual average pool price. This is not the case for 2016, which has not had any high pool price days.
Aver
age
Pric
e ($
/MW
h)
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
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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 CostForecast
Wires Costs Summary
($ millions) 2017Forecast
2016Projected
2016 Forecast
2015Actual
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 CostForecast
Ancillary Services Costs Summary
($ millions) 2017Forecast
2016Projected
2016Forecast
2015Actual
2015Forecast
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 $4.07
Forecast Methodology Operating Reserves (OR)
Forecast OR costs is the sum of forecast hourly volumes multiplied by the hourly OR price
∗ ,
• Volumes: set by Alberta Reliability Standard requirements and dependent on forecast generation
• OR Price: hourly price of operating reserves determined for each product type
• There are no changes to the methodology in preparing the 2017 forecast
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2017 Transmission Line Losses Cost Forecast
Transmission Line Loss Costs Summary
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2017 Forecast
2016 Projected
2016 Forecast
2015Actual
2014 Actual
Cost ($ 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 $49.42
Forecast Methodology Line Losses
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Forecast transmission line losses costs is the sum of hourly volumes multiplied by hourly pool prices
∗
• Volumes: 5-year historical actual losses volumes as a percentage of demand and forecast load volumes
• Pool Price: hourly pool price provided by EDC
• There are no changes to the methodology in preparing the 2017 forecast
2017 Other IndustryForecast
Other Industry Costs Summary
($ millions) 2017Forecast
2016Projected
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 0.3Amortization 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 2015Budget Budget Projected Budget Actual
(6 months) (Estimate)
Key Capital Initiatives 8.0 3.5 5.3 10.1Other Capital Initiatives 4.1 3.9 5.3 3.5Life 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 ActualKey Capital Initiatives
1. Reliability (EMS2 elements) 0.5 0.2 - 6.0 Reliability (other - non EMS elements) 0.4 0.8 0.7 0.42. Critical Infrastructure Protection 0.1 0.2 0.7 0.33. IT & Cyber Security 2.7 1.6 2.5 0.64. MSR3 - Sustainment 3.0 - - -5. Market Evolution 0.1 0.2 0.5 2.16. Intertie Framework 0.3 - 0.3 0.47. Cost Accountability - - 0.0 0.28. Technology Review (website refresh) - 0.5 0.6 0.19. Facilities 1.0 - - -
Total Key Capital Initiatives 8.0 3.5 5.3 10.1Other Capital Initiatives 4.1 3.9 5.3 3.5Life Cycle Funding 6.7 5.6 6.5 3.1SubTotal Capital 18.8 12.9 17.1 16.7Major - EMS 5.9 16.4 17.1 7.3Major - MSR - 2.4 2.5 4.6Major - 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
Proposed2016 Actual
AESO Costs 26.2 26.2Energy Market Deficit / (Surplus) - -AESO Component 26.2 26.2AUC’s Portion of Energy Market Administration Fee 5.3 5.3Total 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
