ISO Rules 9.1 Transmission Facility Projects Industry Workgroup Meeting

ISO Rules 9.1 Transmission Facility Projects
Industry Workgroup Meeting
November 29, 2012 – Rob Senko & Fred Ritter
Public
Agenda
• Welcome and Introductions
• Objectives
• Context and Background
• Transmission Regulation and ISO Rules 9.1
• Overview of the System Projects Process
• Overview of the ISO Rules Development Process
• Events to Date
• Key Issues
• Scope of ISO Rules 9.1 Changes
– In scope
– Out of scope
• Logistics
– Proposed approach
– Roles and expectations
– Proposed workgroup meeting schedule
– Proposed overall schedule
Public
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Objectives
• Context and Background
• Review results of meetings
• Confirm scope and approach
• Discuss logistics and schedule
Public
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Context and Background
• On July 31, 2010, the Minister of Energy issued an order to establish a
Transmission Facilities Cost Monitoring Committee (TFCMC) comprised of
thirteen (13) individual appointed members, of which the AESO is one
• The AESO sits on the committee with a range or representatives from various
consumer groups including two independent government appointed members.
The TFCMC meets monthly to review records that relate to the cost, scope and
schedule of Alberta’s transmission facility projects that are expected to cost more
than $100 million
• A key concern is the rising transmission costs
• The June 2011 report issued by the TFCMC included a recommendation that the
AESO initiate consultation with industry and stimulate discussion regarding the
current cost accountability framework associated with the execution of
transmission projects and to solicit stakeholder feedback to assist in the
development of recommendations for change
Public
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Context and Background Continued
• In follow-up to the TFCMC recommendation the AESO issued a Discussion Paper
in November 2011 initiating consultation with industry on:
– Is the current regulatory framework adequate to ensure the appropriate checks and
balances are in place with respect to cost control of transmission projects?
– Are the current requirements (i.e., as required by ISO and AUC rules) for cost
estimates still adequate for large projects (i.e. over $100 million) developed over a
span of five to 10 years?
– Is the AESO’s level of transparency on transmission cost reporting adequate? Should
more detail be provided recognizing the concern that providing more detail may
negatively impact competitive procurement?
– Are the current rules achieving the desired outcomes? Do the ISO rules offer sufficient
flexibility to enable 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?
• Stakeholders provided comments and the AESO subsequently issued a draft
Recommendation Paper on May 2012 and a final Recommendation Paper in
August 2012
Public
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Context and Background Continued
• Key recommendations included:
– Develop a reporting protocol with the AUC to enhance the level of information sharing
between the AESO and the AUC on the reporting of transmission project costs
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Allow for a “prudency of cost” test on a more timely basis
– Continue to work with the TFOs to improve the cost estimate quality and reliability;
+/- 30% cost and the +20/-10% cost estimates through:
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Changes to ISO Rules 9.1
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Changes to templates
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Benchmarking of transmission costs; in Alberta and other jurisdictions
– Form an industry workgroup to review and discuss changes to 9.1.3 – Project
Reporting by Designated TFOs and section 9.1.5 – Project Procurement
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Public
Later added 9.1.2.2 – Obligation to Provide NID Estimate and 9.1.2.4 – Obligation to
Provide Service Proposal and Service Proposal Estimate
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Transmission Regulation
• Relationship between the Transmission Regulation (“T-Reg”) and ISO Rules 9.1
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Transmission Regulation Section 25 - Transmission facility project cost
reporting
T-Reg 25(1)(a) – cost estimates are reasonable for the purpose of making
transmission planning decisions
T-Reg 25(1)(b) – cost estimates are prepared in a consistent manner and to an
appropriate level of detail
T-Reg 25(2) – ISO can satisfy itself that the cost estimates are reasonable and
relevant
T-Reg 25(5) – ISO may certify to the Commission that the costs were incurred to
meet the need
T-Reg 25(1)(c) – ISO to track changes to cost estimates, scope and schedule from
the original specifications and needs identification document
T-Reg 25(1)(d) – a project cost summary that summarizes original scope, cost and
schedule and summarize changes or cost variances that have occurred
• T-Reg 26(1) – AESO must provide for competitive tenders for the construction of a
transmission facility by a TFO including materials and equipment; may provide for
exemptions
Public
ISO Rules 9.1
NID Estimates
Proposals to Provide Service
Scope change, schedule change, cost
variance reports
Project Cost Summary
(“final cost report”)
Project Procurement Requirements
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System Project Process Overview
Public
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ISO Rules Develop Process & AUC Process
• Upon completion with the workgroup the AESO will draft changes to ISO Rules
9.1, consult with industry on the draft rule and file the final draft rule with the AUC
– AESO consults on rule changes in accordance with AUC Rule 017 Procedures and Process for
Development of ISO Rules and Filing of ISO Rules with the Alberta Utilities Commission
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Events to Date
• Posted the Terms of Reference initiating AESO consultation
on ISO Rules 9.1 changes and formation of an industry
workgroup
• Held one-on-one meetings with key stakeholders, internal
and external, and gathered key concerns
• Initiated the industry workgroup
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Key Issues
General
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NID Estimates
PPS Estimates
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Public
Rising transmission costs on many projects
Status quo is not acceptable and improvements are required including:
o More accurate cost estimates
o More timely reporting
Enhance competitive procurement provisions
Definition and use of “contingency”
Assumptions are important
Level of estimate accuracy is not reasonable given the level of work completed at this stage
Closer alignment between the NID estimate and the PPS estimate
Define the period of time an estimate is valid for
There is a cost to improving quality of estimates - additional engineering
Reduce the gap between the NID and PPS estimates
Facilities in urban areas or underground require more engineering costs
Level of estimate accuracy is not reasonable given the level of work completed at this stage - all
geotechnical not completed, land costs are unknown
Adjust the level of accuracy to more closely align with the work completed
Clarify:
o owner costs
o contingency
Assumptions are important
How will the time delay between the NID estimate and the PPS estimate be dealt with
Clarity around when alternatives should be re-assessed due to changes in cost estimates
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Key Issues Continued
Monthly Reporting −
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Variance Reporting −
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Public
Need the report to be complete and accurate
Large volume of reports to prepare every month, 80 – 90
Clarify the the start and end of monthly reporting
1 week effort to prepare and review reports
15 days may be unreasonable
Allow for extensions if approved by the AESO
If no significant costs have been incurred can a TFO be exempt from providing the report
Indicate in the monthly report if the TFO selected a bid other than the lowest price bid
Suggest:
o reporting on a portfolio basis
o quarterly basis with change orders and alerts as required
o commence reporting at the PPS stage or based on a trigger set out in the Direction Letter
o final cost report should end the reporting, trailing costs are minor
o final cost report to coincide with the final monthly report – 60 days post energization
o flexibility for reporting based on project type
o Column to indicate when sole sourcing was used
Manage on a portfolio basis
Adjust threshold; suggest 10% or $$ amount, whichever is less
Separate system and customer variances
Identify if scope change is driven by the AESO or other reasons
Quite a bit of effort involved in implementing template changes
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Key Issues Continued
Change Proposal
Final Cost Report
Project
Procurement
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Public
Threshold should be at the project level and not at the line level
After PPS threshold is reached all change orders should be sent to the AUC
Submit change orders to the AESO prior to making the change; not after
Consider amending rule language to address trailing costs
Reduce time period for final cost report
Different project types may drive different final cost reporting
Suggest a “how to” guide for completing final cost reports
Discuss if there should be a distinction between system and customer projects and if not clarify that
the final report is required for all projects
Salvage work can prolong the project and needs to be considered
Consider language that allows for subsequent changes – correction of errors, inadvertent costs
Clarify:
o lowest cost or fully compliant bid
o standing bid and length of time the bid is valid for
o short form
o written bid
o engineering services
o project material
o bid is based on overall project life cycle
o Exceptions
o Commercially reasonable
Adjust thresholds
Allow for aggregate purchasing protocols across projects
Consider changing the number of bids required based on project type
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Key Issues Continued
Project
Procurement
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Public
Lowest cost doesn’t always mean the best cost for the customer; balance cost with reliability and
commercially reasonable
Consider:
o Establishing a fairness advisor to assess bid process
o Establishing standard T&Cs for bids
o More detailed reporting when a TFOs varies from the ISO rule
o Increasing the number of bidders to increase competition
Broaden the rule language to allow for unknowns
Demonstrate competitive behavior
Allow for procurement of standard equipment and materials without receiving bids
Allow for competitive bids from non arms length suppliers
Rule needs to allow for cases where 3 bids cannot be obtained, i.e. only 2 suppliers can provide the
material
TFOs may have 2 pre-approved suppliers for some material and this does not meet the 3 bid or sole
sourcing requirements
What constitutes a written bid or short form written bid and how is a short form written bid different
from an ordinary bid?
Consider language to allow for bulk tender contracts and annual service agreements and allows the
AESO the right to audit such contracts and agreements
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Key Issues Continued
Project
Procurement
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Public
Bid normalizations can make a lowest priced bid appear not to be the lowest priced bid
Project Progress Report - should the TFOs report individual procurement that qualifies to this
exception or can they report on a total basis?
Clarify what constitutes acceptable evidence for an audit
Amend the rule language to allow an audit to occur after one year
Emphasize that the competitive procurement details are submitted as part of the final report,
consistent with current rule language
Should TFOs get AESO approval on exceptions at the time the exception is occurring; develop forms
to standardize this
Provide clarity on “the only entity capable to provide the Project Material” – based on the project
schedule, location – Canada or some other country
Should there be a dollar threshold
For certain low value materials it may be more reasonable for TFOs to immediately sole source than
going through the competitive bidding process
Acceptable sole sourcing
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“Preferred” or “approved” supplier - TFO has used for many years, invested large resources
for training, acceptable?
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labour work on a material that the same vendor provided (i.e. to ensure continued operation of
the material)
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Leverage on an existing contract for different projects if it was competitively bid
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insufficient time to solicit bids or insufficient information to allow for the bidding process
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Key Issues Continued
Other
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Public
Long term contracts need to be addressed (multi-year, fixed price, indexed pricing) - competitive
bidding or sole sourcing?
TFOs may hire an EPC provider that will assign consultants for the project. Should the rule extend to
EPC providers?
Posting an opportunity for vendors to bid over the internet is a way to solicit bids; rule language does
not seem to support this approach
Review terms including:
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Project
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Project material
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Engineering services
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Scope
• In Scope
– All transmission projects
– NID estimates
– PPS estimates
– Reporting – monthly, variance, change orders, final cost
– Project procurement
– Related rule and information document changes, template and practice changes
• Out of Scope
– Legislative changes
– Fixed cost estimates
– Reporting protocols with the AUC
– Other sections of ISO Rule 9.1
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Subsection 9.1.1 – Eligible TFO
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Subsection 9.1.1 (2) (3) – Directions
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Subsection 9.1.6 – Confidentiality
– Other ISO Rules
Public
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Logistics
• Proposed approach
Public
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Logistics Continued
• For each step
• Reference to “changes” includes changes to policy (rules),
templates, practices, information document
Public
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Logistics Continued
• Workgroup role:
– Provide input into proposed changes
– Communicate proposed policy changes and other changes within your organization
– Bring organizational views on policy changes and other changes back to the workgroup
– Attend all meetings; fully brief alternates as necessary
• AESO role:
– Facilitate the workgroup sessions
– Post all power point presentations from the workgroup sessions on the AESO website
– Post the overall schedule on the AESO website
– Prepare summary of action items from each meeting; distribute to workgroup
– Propose changes for workgroup consideration at each workgroup meeting
– Consider feedback from workgroup; determination on changes
– Prepare summary of policy changes at the end of the workgroup
– Post the summary of policy changes on AESO website
Public
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Logistics Continued
• Proposed workgroup meeting schedule:
Wednesday January 16, 2013
Wednesday January 30, 2013
Wednesday February 13, 2013
Wednesday February 27, 2013
Wednesday March 13, 2013
Wednesday March 27, 2013
• 10:00 a.m. – 3:00 p.m.
• Consider:
– alternating meetings between Calgary and Edmonton
• EPCOR or ATCO offices when in Edmonton?
– teleconferencing
Public
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Logistics Continued
• Proposed overall schedule:
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Thank you
Rob Senko
(403) 539-2580
[email protected]
Public
Fred Ritter
(403) 539-2616
[email protected]