M E M O www.aeso.ca

2500, 330 – 5 Ave SW
Calgary, Alberta T2P 0L4
Bus: 403.539.2450
Fax: 403.539.2949
www.aeso.ca
M E M O
DATE:
October 29, 2010
TO:
AESO Board
FROM:
Vice-President, Finance
AESO Updated 2011 Business Plan
and Budget Proposal
SUBJECT:
Attached, please find enclosed the AESO’s Updated 2011 Business Plan and Budget Proposal
(the Plan). This document was prepared by AESO Management in consultation with stakeholders
and outlines:
•
•
•
•
•
•
The process employed to develop the Plan;
The AESO’s proposed 2011 business initiatives;
The proposed 2011 general and administrative, interest and amortization cost budgets;
The proposed 2011 other industry cost budgets;
The proposed 2011 capital budgets; and
The forecasted ancillary services and transmission line loss costs for 2011.
AESO Management will be requesting at an up coming Board meeting that the AESO Board
approve, or amend and approve, as appropriate, the items outlined in Section 1 of this document.
Prior to the meeting, stakeholders may request the opportunity to meet with you to discuss their
written comments related to the information provided. As you are aware, these meetings are
scheduled for November 9, 2010.
Should you have any questions or additional information requirements please let me know.
Yours truly,
Todd D. Fior
Vice-President, Finance
cc:
David Erickson, President and Chief Executive Officer
Greg Spence, Director, Business Planning
Carol Moline, Director, Accounting and Treasury
Industry Stakeholders
2011 Updated
Business Plan
and Budget Proposal
October 29, 2010
2011 Updated Business Plan and Budget Proposal
Table of Contents
Section 1
Board Decision Items
Section 2
Stakeholder Presentations to the AESO Board
Section 3
Stakeholder Consultation Undertaken
Section 4
Section 5
•
Terms of Reference for Budget Review Process
•
Budget Review Process
•
Budget Review Process Schedule
2011 Updated Business Plan and Budget Proposal
•
General & Administrative Costs (2011 updated budget)
•
Interest Costs (2011 unchanged budget)
•
Amortization (2011 updated budget)
•
Capital (2011 updated budget)
•
Other Industry Costs (2011 unchanged budget)
•
Transmission Line Losses (2011 forecast)
•
Ancillary Services (2011 forecast)
Stakeholder Comments and AESO Responses
Table of Contents
2011 Updated Business Plan and Budget Proposal
Section 1 – AESO Board Decision Items
Executive Summary
In January 2010, the AESO Board published their decision approving the 2010 and 2011
Business Plan and Budget Proposal (Business Plan). This Business Plan set forth the
foundation on which we intended to operate the business for 2010 and 2011, our multiyear planning document.
When the multi-year planning process was established with stakeholders and our Board,
the principles for an annual review process were set. As part of this process, prior to the
start of each fiscal year, we would review the established business initiatives and prepare
a forecast to assess any budget changes required to deliver these business initiatives.
This process ensures that any material change to our budget is considered as we
reassess our business initiatives in year two of the business plan.
Over the last several months, we have reviewed and discussed with stakeholders and
our Board, the business initiatives for 2011. From this review, we have confirmed that
execution of our planned direction for our operations in the upcoming year will enable the
AESO to meet its mandate 1 and act in a leadership capacity in the industry. This 2011
Updated Business Plan and Budget Proposal (2011 Updated Business Plan) confirms the
business initiatives that are our focus for 2011. Our adjusted budget is based on the
funding required for us to achieve our business initiatives as outlined in the 2011 Updated
Business Plan. In addition to this, we are also providing the wires, transmission line
losses and ancillary service cost forecasts for 2011 which are within the AESO Board’s
mandate for approval based on the provisions in the Transmission Regulation.
1
The Alberta Electric System Operator (AESO) is responsible for the safe, reliable and economic planning and
operation of the Alberta Interconnected Electric System (AIES) and the facilitation of a fair, efficient and openly
competitive electricity market.
Page 1
2011 Updated Business Plan and Budget Proposal
At this time, we are presenting this 2011 Updated Business Plan to the AESO Board for
endorsement and approval which includes the following:
•
•
•
•
•
•
•
General & Administrative Costs (2011 updated budget)
Interest Costs (2011 unchanged budget)
Amortization (2011 updated budget)
Capital (2011 updated budget)
Other Industry Costs (2011 unchanged budget)
Transmission Line Losses (2011 forecast)
Ancillary Services (2011 forecast)
The stakeholder consultation process we undertake, referred to as the Budget Review
Process (BRP), allows us to prepare a comprehensive business plan and budget that has
been reviewed, discussed and at times challenged before we’ve reached this point. We
continue to believe that this open and transparent process enables us to prepare a
thorough and comprehensive business plan and we believe our stakeholders continue to
appreciate this inclusive process. The end result is a well communicated and understood
business plan that will provide us direction in the upcoming year. There were no formal
written questions or comments received from stakeholders during the 2010 BRP though
we responded to various questions posed from stakeholders during these meetings.
The following will be requested of the AESO Board.
Page 2
2011 Updated Business Plan and Budget Proposal
AESO Board Approval Requested
1. Endorse the 2011 business initiatives1 that are included in the 2011 Updated
Business Plan and Budget Proposal which are consistent with those outlined in the
2010 and 2011 Business Plan and Budget.
2. Approve the following proposed 2011 budget and forecast amounts:
Revenue Source ($ million)
Budget/Forecast
Category
Transmission
Energy
Market
58.3
24.6
2.5
Interest 3
1.4
0.9
0.3
Amortization 3
8.9
5.1
3.1
General and Administrative 2
Load
Settlement
Capital 4
85.5
2.6
(unchanged)
17.1
27.0
Other Industry 5
Wires 6
Transmission Line Losses
Total
6
Ancillary Services 6
21.5
14.3
7.2
-
728.0
-
-
728.0
121.0
-
-
121.0
95.9
-
-
95.9
(unchanged)
Details provided on the following pages in the 2011 Updated Business Plan (Section
4):
1
Page 3-14
2
Page 23
3
Page 26
4
Page 28
5
Page 20 and Appendix C
6
Page 21
Page 3
2011 Updated Business Plan and Budget Proposal
Section 2 – Stakeholder
Presentations to the AESO Board
Stakeholder presentations to the AESO Board to be inserted when received.
Page 1
2011 Updated Business Plan and Budget Proposal
Section 3 – Stakeholder Consultation
Undertaken
The Transmission Regulation 1 (T-Reg) includes provisions addressing the approval of
the AESO’s own costs, ancillary services costs and transmission line losses costs. The
T-Reg provides that the AESO must consult with participants with respect to the
proposed costs to be approved by our Board. It also provides that these costs, once
approved by the AESO Board, must be considered by the Alberta Utilities Commission
(Commission) as ‘prudent’ unless interested persons satisfy the Commission otherwise.
The practice we have established to carry out this consultation is the Budget Review
Process (BRP). The BRP is a transparent stakeholder process which provides a level of
prudence review with input from stakeholders. At the conclusion of the BRP, we will make
a recommendation with respect to our own costs (general and administrative, interest,
amortization, capital and other industry costs), ancillary services costs and transmission
line losses costs to the AESO Board for approval.
We have posted on the AESO website the BRP overview, terms of reference and a
calendar providing the 2010 BRP milestone activities leading up to an AESO Board
decision (the calendar was revised throughout the process to accommodate process
changes and schedules). These documents have been included as Appendices A to C to
this Section. At a high level, the BRP steps followed in this second year of a two year
budgeting process are as follows:
1.
Notice to Stakeholders
2. AESO Develops Ancillary Services and Transmission Line Losses Cost
Forecasts
3. Technical Meeting(s) to Review the Own Cost Budget Forecasts and Prior Year
Actual Costs with Stakeholders
4.
AESO Board Decision
As with prior years’ BRP, the process has been open to all stakeholders and the process
had been transparent as all presentation material, stakeholder comments (if any) and our
responses have been posted on the AESO website. Through this process, we have
ensured that all stakeholders have had an opportunity to provide input. The BRP will be
re-evaluated with stakeholders at its conclusion and refinements made to the process
going forward as required.
1
A/R 86/2007
Page 1
2011 Updated Business Plan and Budget Proposal
Appendix A – Terms of Reference
for Budget Review Process
~ last reviewed July 2010
Transparency is the overarching principle in the BRP. The following will ensure
transparency to stakeholders during this process:
•
The process should be open to all stakeholders that are interested.
•
The size of the group should not be limited.
•
Stakeholders are encouraged to register as participants at the outset of each year’s
process in order to ensure a consistent understanding and to minimize inefficiencies.
•
Comments will be collected in written form, and be shared with all stakeholders (i.e.,
posted to the AESO website). As well, stakeholders will have an opportunity to
comment on each other’s comments.
•
The decision rendered by the AESO Board on these matters, will contain reasons /
rationale.
•
Throughout the process, the AESO will endeavour to provide as much information as
reasonably possible to ensure stakeholders have all information relevant to the
subject matters under review. However, the AESO and stakeholders will need to
agree on the level of detail to discuss (including confidential information), on an issue
by issue basis, in an effort to be most effective and efficient.
•
At the end of each AESO BRP cycle, the AESO and stakeholders will evaluate the
effectiveness of the process and make appropriate changes if required for the
following year.
In addition:
•
Everyone is able to present their views.
•
Everyone must work within the timeline agreed upon at the start of the process.
•
This process is not a negotiated settlement.
•
The material to be delivered to the AESO Board in order to prepare a decision does
not have to be agreed upon unanimously.
•
Information will be provided to all stakeholders in a timely manner.
•
Stakeholders will have a reasonable time period to review and respond to AESO
material.
•
Nothing will preclude the opportunity for stakeholders to ultimately appeal any
decision using the dispute mechanism outlined in the ISO Rules.
Appendix A
2011 Updated Business Plan and Budget Proposal
Appendix B – Budget Review
Process
~ last reviewed July 2010
Refer to the following BRP flow diagram.
Appendix B
2010 Budget Review Process – Abbreviated BRP
Process to approve forecasted Ancillary Services & Transmission Line Losses and update Stakeholders on 2011 Business Priorities and Own Cost budget
1.0
2.0
3.0
4.0
5.0
Notice to
Stakeholders
AESO develops Own,
Ancillary Services and
Transmission Line
Loss Costs Forecasts
Technical Meeting to Review
Forecast & Prior Year Actual
Costs
AESO Board Decision
Dispute or Appeal
Process
• Review progress on existing
• AESO Board reviews
• Dispute resolution
• Notice sent to all
stakeholders that
the process to
develop and
review forecasted
costs will
commence
• Process includes
developing a
schedule with all
milestone dates
• AESO prepares
forecast of Ancillary
Services,
Transmission Line
Losses and Own
Costs
• AESO prepares prior
year actual costs
compared to
approved costs with
variance
explanations
• AESO provides
documents to
stakeholders in
advance of holding a
technical review
session(s)
strategic plan and priorities
with stakeholders and
provide update on 2011
priorities.
• AESO holds technical
session(s) with stakeholders
where the AESO presents
cost results, forecasted
costs, assumptions and
responds to stakeholder
comments
• AESO posts meeting
overview document to AESO
website and asks for written
comments
• AESO makes revisions as
deemed necessary
• AESO prepares an AESO
Board Decision Document
and provides to stakeholders
for review prior to
submission to the AESO
Board
• AESO submits Board
Decision Document to the
AESO Board for review and
decision
July 22, 2010
Alberta Electric System Operator
Board Decision
Document
• Stakeholders make
oral or written
presentations to the
AESO Board on
issues of
disagreement or
concern (multi-lateral)
• Stakeholders have the
mechanism for
instances where a
stakeholder
disagrees with the
AESO Board
Decision.
• The Dispute
Resolution
process is outlined
in the ISO Rules
opportunity to provide
comments on each
stakeholder
presentation
• AESO Board
considers stakeholder
presentations and
reply comments in its
approval process
• AESO Board issues a
decision for AESO’s
Own, Ancillary
Services and
Transmission Line
Loss Cost forecasts
with rationale.
Page 1 of 1
2011 Updated Business Plan and Budget Proposal
Appendix C – Budget Review
Process Schedule
~ last reviewed September 2010
Refer to the following calendar providing the 2010 BRP milestone activities.
Appendix C
2010 Budget Review Process (BRP) - Abbreviated
External Calendar - Process - Revised September 15, 2010
Stakeholder Meetings
Stakeholder Comments Requested
Stakeholder Comments Received
AESO Posts Meeting Summary
AESO Board Meeting
JULY
Mon
Tues
Wed
AUGUST
Thurs
1
Fri
2
Holiday
5
6
7
8
Mon
2
Tues
3
Wed
4
SEPTEMBER
Thurs
5
9
10
11
12
Distribution of
materials for
Aug 30 mtg.
(Step 3.0)
12
19
26
13
20
27
14
21
28
15
16
22
23
Distribution of
Notice to
Stakeholders
and Process
Review
Materials
(Step 1.0)
Web posting
for comments
of
July 22 Notice
to
Stakeholders
(Step 3.0)
29
30
16
23
Mon
Tues
Wed
1
OCTOBER
Thurs
2
Fri
3
Mon
Tues
Wed
November
Thurs
Fri
1
Mon
1
Tues
2
Wed
3
17
24
30
31
Tech. Mtg. AS & Line
Loss Costs
(Step 3.0)
Web posting
for comments
of
Aug 30 mtg.
(Step 3.0)
18
25
19
26
13
6
Web posting
of comments
on Process
Review
Materials
(Step 3.0)
Holiday
20
13
27
20
27
7
8
9
10
4
5
6
7
8
8
Web posting
Distribution of
materials for
Tech. Mtg. for comments
Tech. Mtg.
Own Costs - I
of
(Step 3.0)
Oct 7 mtg.
Own Costs - II
(Step 3.0)
(Step 3.0)
14
21
28
15
22
29
16
23
17
11
Receive
Stakeholder
comments
from
Aug 30 mtg.
(Step 3.0)
Holiday
24
18
Web posting
of comments
on
Aug 30 Tech.
mtg.
(Step 3.0)
Receive
Stakeholder
comments
from
Oct 7 mtg.
(Step 3.0)
30
25
Distribution of
materials for
Tech. Mtg.
Own Costs - I
(Step 3.0)
Receive
Stakeholder
comments
from
Oct 14 mtg.
(Step 3.0)
1 of 1
12
19
13
20
14
15
Tech. Mtg.
Own Costs - II
(Step 3.0)
Distribution of
draft
Board
Decision
Document
(Step 3.0)
21
22
9
December
Thurs
4
Fri
5
Receive
Stakeholder
written
submissions
for AESO
Board
(Step 4.0)
Web posting
of written
submissions
for AESO
Board
(Step 4.0)
10
11
17
24
Receive
Stakeholder
comments
from
July 22 Notice
(Step 1.0)
Holiday
9
Fri
6
Mon
Tues
Wed
1
Thurs
2
Fri
3
12
6
7
8
9
10
18
19
13
14
15
16
17
25
26
20
21
22
23
24
AESO Board
Meeting
(A.M.)
15
22
Oral Presentation to
AESO Board or
16
Board Committee
(Step 4.0)
23
AESO
Day Off
26
27
28
Distribution of
final
Board
Decision
Document
Step (3.0)
29
29
30
27
28
Holiday
Holiday
29
30
31
AESO
Day Off
09-17-2010
2011 Updated Business Plan and Budget Proposal
Section 4 – Updated Business Plan
and Budget Proposal
Page 1
2011 Updated
Business Plan
and Budget
Proposal
Version 2
October 29, 2010
2011 Updated Business Plan and Budget Proposal
Table of Contents
Our Planning Process....................................................................................................... 1
Multi-Year Planning Process ........................................................................................ 1
Year Two Assessment Findings ................................................................................... 2
Our Business Initiatives ................................................................................................... 3
Market Development .................................................................................................... 3
Electric System Development (Transmission).............................................................. 6
Customer Access Services........................................................................................... 9
Electric System Operations ........................................................................................ 11
Enabling Our Core Business Areas............................................................................ 13
Our Financial Highlights................................................................................................. 15
Section I – 2010 ............................................................................................................... 16
Costs........................................................................................................................... 16
Capital Expenditures ......................................................................................... 17
Section II – 2011 .............................................................................................................. 19
Financial Outlook........................................................................................................ 19
Costs........................................................................................................................... 21
Transmission Operating Costs .......................................................................... 21
General and Administrative Costs..................................................................... 23
Interest Costs and Amortization ........................................................................ 26
Capital Expenditures ......................................................................................... 27
Revenue ..................................................................................................................... 29
Appendix A: Multi-Year Budget Process.......................................................................... 31
Appendix B: Year-To-Date August 2010 Financial Results Detail................................... 32
Appendix C: 2011 Other Industry Costs .......................................................................... 37
Appendix D: Transmission Operating Cost Definitions.................................................... 38
Appendix E: 2011 General and Administrative Cost Detail ............................................. 40
Appendix F: 2011 Staff Addition Detail ............................................................................ 44
PAGE i
2011 Updated Business Plan and Budget Proposal
Appendix G: 2011 Consulting Cost Detail........................................................................ 46
Appendix H: Capital Projects ........................................................................................... 49
Appendix I: Allocation of Costs ........................................................................................ 56
PAGE ii
2011 Updated Business Plan and Budget Proposal
Our Planning Process
Our Planning Process
Multi-Year Planning Process
In January 2010, the AESO Board published their decision approving the 2010 and 2011
Business Plan and Budget Proposal (Business Plan). This Business Plan set forth the
foundation on which we intended to operate the business for 2010 and 2011, our multiyear planning document. In the development of the Business Plan in 2009, we carried out
an in-depth review of our organization and the environment in which we operate; we
reviewed how we operate, the demands on our organization and what financial resources
are required to fulfill our mandate and achieve our strategic objectives and business
initiatives. The culmination of this work was the Business Plan.
When the multi-year planning process was established with stakeholders and our Board,
the principles for an annual review process were set (Appendix A provides additional
information). As part of this process, prior to the start of each fiscal year we would review
the established business initiatives and prepare a forecast to assess any budget changes
required to deliver these business initiatives. This process ensures that any material
change to our budget is considered as we reassess our business initiatives in year two of
the business plan. As was acknowledged when we presented the Business Plan and
when it was subsequently approved by the AESO Board, it was understood that “AESO
Management and the AESO Board would closely monitor the demands on the resources
of the AESO [during the multi-year planning period], make adjustments as appropriate,
and obtain stakeholder input if required”1. The circumstances that would warrant intraprocess budget reviews by stakeholders and the AESO Board would be based on any
significant changes in the AESO’s Business Plan and related priorities and cost
variances.
1
AESO Board Decision 2010 and 2011-BRP-001 issued January 2010 (page 22)
PAGE 1
2011 Updated Business Plan and Budget Proposal
Year Two Assessment Findings
Over the last several months, we have reviewed and discussed with stakeholders and the
AESO Board, the direction of our strategic plan and related business initiatives for 2011.
From this review, we have confirmed that execution of our planned direction for our
operations in the upcoming year will enable the AESO to meet its mandate2 and act in a
leadership capacity in the industry. This 2011 Updated Business Plan and Budget
Proposal (2011 Updated Business Plan) reiterates and confirms the business initiatives
that are our focus for 2011. Additional information on the business initiatives was
provided in the 2010 – 2011 Business Plan and Budget Proposal document that was
distributed as part of the Budget Review Process in September 20093 and subsequently
approved by the AESO Board.
Once the business initiatives were confirmed, we completed a detailed assessment of the
resources that are required to deliver on our commitments, reviewing human resource
needs (staff and consultants) and information technology (IT) system requirements in
addition to other ongoing administrative costs. This resource assessment was then
compared to the 2011 budget that was approved by the AESO Board in October 2010 to
determine what, if any, adjustments would be required. As will be highlighted further in
this 2011 Updated Business Plan, we are proposing adjustments to the 2011 budget as a
result of this detailed review.
2
The Alberta Electric System Operator (AESO) is responsible for the safe, reliable and economic planning and
operation of the Alberta Interconnected Electric System (AIES) and the facilitation of a fair, efficient and openly
competitive electricity market
3
Available on the AESO website at www.aeso.ca following the path About AESO ► Our Business ► 2010 and
2011 Business Priorities and Budget
PAGE 2
2011 Updated Business Plan and Budget Proposal
Our Business Initiatives
Our Business Initiatives
The AESO delivers upon its mandate through four core business areas:
1. Market Development
2. Electric System Development
3. Customer Access Services
4. Electric System Operations
Integral to supporting and developing these four major business areas are the AESO’s
people, technology and processes. These are our core assets. Our commitment to
significant investment in these assets is fundamental to achieving the short-term and
long-term goals established in the AESO’s core business areas.
Market Development
The AESO is responsible for facilitating the development of Alberta’s hourly
wholesale electricity market, which has more than 200 participants and completed
over $5 billion in electricity transactions in 2009.
As Alberta’s wholesale electricity market continues to evolve, the AESO will continue to
engage stakeholders to provide input on market policy issues and advance discussions
that will guide the evolution of Alberta’s wholesale electricity market. The engagement of
our stakeholders continues to be critical in our achievement of the initiatives as outlined
in the Business Plan. The Market Advisory Group (MAC) continues to be a significant
contributor to our stakeholder process.
In general, we have been able to make significant progress in our implementation of the
Market Roadmap thus far in 2010. Significant progress on various initiatives including
wind integration, intertie framework and restoration, congestion management and
remedial action schemes (RAS), demand response, operating reserves, Section 6 Fair
Efficient Open Competition (FEOC) requirements, market suspension, supply surplus and
market performance metrics has occurred. A list of our achievements thus far in 2010 is
described in the following section.
PAGE 3
2011 Updated Business Plan and Budget Proposal
As we progress with these initiatives over the remainder of 2010 and into 2011, there will
continue to be requirements for the development of alternatives, stakeholder
consultation, rule development, operating procedure changes and system
operator/market IT tools. As a result, there will be increased requirements on our
Regulatory, Communications, Operations and IT groups to implement the market
initiatives as they progress.
We have also made significant progress on our initiative to design and implement a
comprehensive framework for streamlining the approval process of Independent System
Operator (ISO) Rules and Alberta Reliability Standards (ARS) (collectively referred to as
our authoritative documents). We are now in the sustainment phase of this initiative as
the process changes have been implemented. We continue to convert the ISO Rules
over to the new requirements and as new rules arise, they are subject to the new
process. We believe that the objective of a streamlined process with clearly defined
participant obligations is being achieved.
Our Current Achievements in 2010
The following is a summary of the initiatives that have been advanced in 2010:
•
A recommendation paper regarding the short-term wind integration plan was
posted to the AESO website for stakeholder review and comment. The wind
technical rule was filed with the Alberta Utilities Commission (Commission).
•
A centralized wind forecast was procured and integration of forecast data with
AESO market systems is currently underway.
•
A recommendation paper regarding the long-term intertie framework was posted
to the AESO website for stakeholder review and comment. Activities are
underway to ensure successful integration of the Montana-Alberta Tie Line into
the Alberta Interconnected Electric System (AIES).
•
A recommendation paper regarding the restoration of interties was posted for
review and comment. Implementation of the import intertie restoration product
(LSSi) is on track for an April 2011 implementation.
•
A supply surplus discussion paper was posted to the AESO website for
stakeholder review and comment. It proposed a short-term solution and initiates
discussion on the long-term options for supply surplus. A recommendation paper
will be posted to the AESO website.
•
A discussion paper on the market suspension rule outlining possible options was
issued for comment. A recommendation paper will be posted to the AESO
website.
•
A discussion paper for the rules framework and transition documents was posted
to the AESO website for stakeholder review and comment.
•
Phase 1 implementation of the Operating Reserve Market Re-design
recommendation paper was completed. The procurement of operating reserves
was shifted from Day-5 to Day-1 and operating reserve market reports were
enhanced.
PAGE 4
2011 Updated Business Plan and Budget Proposal
•
A recommendation paper outlining the proposed FEOC market share offer
control implementation was issued.
•
Responses to stakeholder comments regarding the transmission congestion
management (TCM) rule re-filing and the transmission RAS business practice
discussion paper have been posted to the AESO website. The TCM rule is the
subject of a Commission decision. Draft rules for TCM and RAS have been
posted for comment on the AESO website.
•
On track with the preparation and analysis required to complete the 2011 Longterm Transmission System Plan. An information paper outlining the finalized
baseline assumptions (load and generation scenarios) will be issued.
Stakeholder consultation has occurred throughout the year.
For the remainder of 2010, we will continue to focus on the market initiatives which are
currently in progress. Additional information on the status of the AESO’s market initiatives
can be found by visiting the MARKET tab on the AESO website.
Our Plan for 2011
In 2011, the AESO will continue to advance initiatives as outlined in the Business Plan to
further evolve Alberta’s wholesale electricity market and contribute to achieving the
strategic objective related to the energy-only market (Strategic Objective 1: We will
design and operate a competitive, energy only electricity market where evolution is driven
by participants and the AESO). We will continue to consult with our stakeholders on the
progress of our initiatives in support of a fair, efficient and openly competitive electricity
market.
Our key initiatives include:
•
Implement the Market Roadmap;
•
Facilitate integration of wind generation;
•
Facilitate development and restoration of interties; and
•
Continue to execute the transition of authoritative documents project.
PAGE 5
2011 Updated Business Plan and Budget Proposal
Electric System Development (Transmission)
The AESO is responsible for assessing the current and future needs of market
participants and planning the transmission system to meet those needs. We utilize
a system planning process to proactively identify projects, achieve regulatory
approval and initiate development in coordination with transmission facility
owners (TFOs). Our objective is to ensure transmission facilities are in place to
maintain a reliable and economic transmission system that facilitates operation of
competitive electricity markets.
As indicated in our 2010 and 2011 Business Plan and Budget, the transmission system is
a highway for the province’s electricity industry. The transmission system must be
capable of delivering electricity when and where it is needed, while power generators
must be confident that they are able to connect to the grid accommodating new
investment in generation. The existing transmission system is congested, aging, and
results in significant wasted electricity as a result of large system losses. We continue to
believe that now is the time to close the gap between the currently stretched system and
one that is able to meet the current and future needs of the province.
We continue to make progress on the transmission projects outlined in our Long-term
Transmission System Plan (LTSP). In accordance with the Transmission Regulation (TReg), the updated LTSP will be issued on or before June 1, 2011. It is imperative that we
continue to make progress on the Critical Transmission Infrastructure (CTI)4 projects as
well as various regional transmission projects. The regional transmission projects must
be implemented to meet market participant needs as required. As the province has been
a net importer of electricity since 2002, the AESO also continues to focus some of its
transmission planning activities on interties (transmission lines that connect Alberta with
neighbouring jurisdictions).
In addition, the T-Reg describes the roles, responsibilities and key requirements of a
competitive procurement process for CTI. Pursuant to this requirement, we are
developing a competitive procurement process that will apply to the Fort McMurray CTI
project and future CTI projects. We have initiated stakeholder consultation on this
requirement and will continue to do so as the process is developed over the remainder of
2010 and into 2011.
The T-Reg has also formalized the Transmission Facilities Cost Monitoring Committee
which was created under the Ministerial Order 64/2010 to provide consumers with
increased transparency and the ability to monitor costs of large projects prior to the
TFO’s rate hearings. The Ministerial Order describes the roles and responsibilities of the
4
In 2009, the AESO released its Long-term Transmission System Plan (LTSP) which outlines the following four
Critical Transmission Infrastructure (CTI) tier 1 projects:
1. Two 500 kilovolt (kV) high voltage direct current (HVDC) high capacity lines from the Edmonton area
to the Calgary and South regions.
2. One 500 kV double circuit alternating current line from the Edmonton area to the Industrial Heartland
area (parts of Sturgeon, Strathcona and Lamont counties).
3. Two 500 kV lines to Fort McMurray - one from the Wabamun Lake area and one from the Industrial
Heartland area northeast of Edmonton.
4. A 240 kV substation in the south Calgary area.
PAGE 6
2011 Updated Business Plan and Budget Proposal
13 consumer and business groups and the AESO that form the Committee. The AESO
will facilitate the provision of records to the Committee, which includes, as a minimum,
the monthly project reports and quarterly cost reports.
As we continue to progress with the implementation of the LTSP, there will be a heavy
reliance on AESO resources. A large number of transmission need applications will be
developed and filed with the Commission in 2011 which will increase the workload in
Regulatory and Legal for the preparation and assembly of the applications for filing, in
Corporate Communication for stakeholder consultation, in Forecasting for load forecasts
and in Operations for the development and/or revision of the operating policies and
procedures. In addition, IT tools may be required to support these projects. The AESO
will continue to focus on its project management capabilities and disciplines as additional
project management resources will be required to manage the high volume of customer
connection requests.
Our Current Achievements in 2010
The following is a summary of the initiatives that have been advanced in 2010:
•
The Commission has approved the AESO’s Needs Identification Document (NID)
for transmission development in the North Central region. This covers 31,000
square kilometres, including the towns of Slave Lake, High Prairie, Valleyview,
Swan Hills and Whitecourt.
•
The Commission has approved the AESO’s NID for transmission development in
the Hanna region, which supports additional wind generation and a significant
increase in pipeline load. The AESO has been coordinating the filing of 24
Facility Applications (FA) by the TFOs. These FAs will be filed during the fourth
quarter of 2010 and the first quarter of 2011.
•
The AESO submitted a NID for transmission reinforcement in Central East
Alberta in May. The hearing for the NID application is scheduled for November
2010 with the forecast for Commission approval in the spring of 2011. This will be
followed up with the filing of FAs in the third quarter of 2011.
•
The Commission has approved the AESO’s NID for transmission development in
the Yellowhead region which replaces aging infrastructure and addresses
escalating maintenance capital expenditures in the region. All FAs for the project
have been filed with the Commission for approval.
•
The CTI projects continue to advance. The FA for the Heartland transmission
development project was filed with the Commission in September and we
anticipate that the FA for the south Calgary 240 kV substation will be filed before
year-end. The FAs for the east and west 500 kV HVDC lines will be filed in 2011.
•
The AESO has reviewed 57 proposal to provide service (PPS) documents
submitted by the TFOs. The PPSs must be accepted by the AESO before the
TFO can file a project FA.
The AESO has a number of very significant transmission system reinforcements currently
underway (including projects approved, pending approval and under construction)
PAGE 7
2011 Updated Business Plan and Budget Proposal
throughout the province. For the remainder of 2010, we will continue to focus on the
implementation of our LTSP.
Our Plan for 2011
In 2011, we will continue to advance initiatives as outlined in the Business Plan to further
evolve the AIES and contribute to the achievement of the AESO’s strategic objective
related to development of an unconstrained transmission system (Strategic Objective 2:
We will lead development of a reliable transmission system, including interties with other
jurisdictions, that fully enables operations of the competitive market).
Our key initiatives include:
•
Implement the AESO’s LTSP;
•
Advance the development of CTI, regional and customer connection projects;
•
Review and streamline the end-to-end transmission development process for
system and customer connection projects; and,
•
Update the AESO’s LTSP and file it with the Commission.
PAGE 8
2011 Updated Business Plan and Budget Proposal
Customer Access Services
We are responsible for providing customers with transmission system access to
the Alberta power grid and access to the wholesale electricity market.
The AESO provides customers (i.e., generators and large commercial and industrial endusers) with access to the AIES. The AESO will continue to focus on implementation of
the redesigned customer connection process and on the execution of the large number of
connection projects in the queue.
In April 2010, we implemented a new customer connection process with the objective of
having a more effective and efficient process to connect market participants to the grid.
The number of connection applications slowed in 2009 due to the economic downturn.
However, prior to 2009, the AESO received system access requests at an unprecedented
rate resulting in a backlog of applications. Some projects which were delayed or deferred
as a result of the economic downturn have now resumed and applications for new
projects are also being received. In addition, a number of the new connection
applications are quite complex in nature. The AESO currently has over 200 active
customer connection projects.
Currently, we expect to file 45 customer connection NIDs with the Commission in 2010
which is a significant increase over 2009 (2009 – 19 NIDs, forecast 2011 - 61 NIDs).
Similar to system projects, the increase in the number of customer connection projects
will impact workload beyond the Transmission department. As previously mentioned, the
increase in the volume of applications will increase the workload throughout the
organization.
Our Current Achievements in 2010
The following is a summary of the initiatives that have been advanced in 2010:
•
We have assembled AESO project delivery groups which are aligned
geographically into North and South teams. These teams are responsible for
both system development and customer connection projects.
•
Following more than a year of stakeholder consultation, the AESO prepared and
filed a 2010 General Tariff Application with the Commission. It reflects the new
customer connection process as well as other updates. We expect to receive
approval by the end of the year.
•
We are reviewing, updating and creating transmission related authoritative
documents, including AESO Rule 9.1 (project reporting and procurement), to
simplify and clarify the transmission delivery processes and ensure all parties
have clearly defined responsibilities and the visibility of information required to
better manage transmission projects.
We will work with TFOs and customers to test and monitor the customer connection
process and will conduct a process review in the latter part of 2010.
PAGE 9
2011 Updated Business Plan and Budget Proposal
Additional information is available on the CUSTOMER CONNECTIONS tab on the AESO
website.
Our Plan for 2011
In 2011, we will continue to advance initiatives as outlined in the Business Plan to further
improve access to the transmission system and wholesale electricity market in support of
the strategic objective related to provision of system and market access services
(Strategic Objective 3: We will consistently meet or exceed customer expectations in the
delivery of system and market access services). We will continue to focus on customer
service access improvements and our efforts will be informed by stakeholder feedback
solicited in late 2010. The AESO has also developed performance metrics for the
customer connection process. With the project management tool5 in place, we will
employ these metrics to further the continuous improvement process that started in 2010.
5
The AESO has implemented the project management tool (@task) during the third quarter of 2010. The full
implementation of the tool will be in place following completion of required training by project management staff
in the latter part of 2010.
PAGE 10
2011 Updated Business Plan and Budget Proposal
Electric System Operations
The AESO is responsible for directing the safe, reliable and economic operation of
the AIES and operation of the wholesale electricity market in a fair, efficient and
openly competitive manner.
The AESO’s system coordination centre (SCC) is the heart of its 24/7 operation and
facilitates our mandate to keep the competitive market functioning and the lights on in
Alberta. Operating a strained, aging and congested transmission system becomes more
challenging every year.
The AESO’s system controllers have a long and successful track record in operating
power systems that includes more than 200 person-years of combined experience. They
are responsible for the real-time operations of the Alberta electric system. Our system
controllers match supply and demand every minute of every day to ensure power is
available when Albertans need it. They also monitor and direct the operation of the
provincial power grid to ensure safe, reliable and economic power for all Albertans.
The individuals who work in our SCC have a specialized skill set. The market and
transmission initiatives that are undertaken within the AESO and the broader industry
require integration into the existing systems and procedures being utilized within the
SCC. Our SCC personnel are experienced at receiving and integrating these changes
into a 24/7 environment without jeopardizing the safe, efficient and reliable operation of
the AIES. Our SCC personnel rely on training, technology and procedures to make this
happen. As a result, we continue to make significant capital investments in our
technologies and investments in our people as we need to have the capabilities to
operate the transmission system and the wholesale market in a reliable and efficient
manner. Adequate resources are required within Operations to ensure that the multiple
new initiatives within Markets and Transmission can be efficiently integrated and
operationalized within the real-time environment in 2011.
In addition, we have agreed to operate the AIES and competitive market, to the extent
possible, in accordance with the North American Electric Reliability Corporation (NERC)
and Western Electricity Coordinating Council (WECC) reliability criteria and standards.
We continue to make progress implementing our standards, which are referred to as
Alberta Reliability Standards.
Our Current Achievements in 2010
The following is a summary of the initiatives that have been advanced in 2010:
Alberta Reliability Standards (ARS)
•
To date, five standards have been filed with the Commission for approval and 26
standards are currently in various stages of consultation with stakeholders. The
consultation will take place over the coming months in an effort to prepare for a
number of standards to be filed with the Commission prior to year-end, with the
majority to be completed in the new year.
PAGE 11
2011 Updated Business Plan and Budget Proposal
•
Stakeholder compliance monitoring activities by the AESO have been initiated
and are progressing on schedule. The self-certification cycle has also
commenced and self-certifications have been submitted by market participants
for assessment by the AESO.
•
Stakeholder ARS education activities are ongoing. A compliance workshop was
held in May and broad industry consultation is continuing.
•
The AESO self-certified to WECC on our compliance with three standards (as of
June 30, 2010) in July 2010.
Fourth System Controllers Desk
•
Recruitment for the positions approved for 2010 for the fourth system controller
desk are underway.
•
The real-time operations planning capabilities (advanced applications) of the
newly replaced Energy Management System (EMS) are being utilized delivering
increased system visibility and maximizing transmission capabilities under
congested environments.
•
The AESO held its annual AIES power system restoration training drills in
Calgary and Nisku. Over 200 participants attended including transmission facility
owners, generation facility owners, distribution facility owners and AESO system
controllers.
For the remainder of 2010, we will continue to focus on implementing the Alberta
Reliability Standards and operationalizing the fourth system controller desk.
Our Plan for 2011
In 2011, we will continue to advance initiatives as outlined in the Business Plan to further
improve our ability to operate the AIES and wholesale electricity market. This includes
the continued effective implementation of ARS and the addition of a fourth system
controller desk (including continued expansion and enhancement of EMS to add
additional functionality).
PAGE 12
2011 Updated Business Plan and Budget Proposal
Enabling Our Core Business Areas
Integral to achieving the objectives related to our core business areas are the AESO’s
people, technology and processes—core assets in which we must continue to advance
and invest in.
Our people continue to be our most important asset. Our people drive our business as
we continue to look at ways to operate more effectively and efficiently. Without our
people we would not be able to succeed in such a demanding environment.
Our technology continues to be a key enabler to our business. We must continue to
ensure that we are capable of proactively implementing new supply and demand
technologies to support market and grid operations and providing effective access to data
and information for market participants. We must utilize scalable, robust and secure IT
systems to achieve operational excellence and we invest in our underlying IT
infrastructure to ensure this. We also make significant capital investments in our business
systems to support the growth and evolution of our market, transmission and operations.
We also must continue to look forward. We must appreciate that technology extends
beyond information systems to various forms of technology such as integrating wind
power, HVDC, Smart Grid, and advanced metering infrastructure. We need to support
and enable emerging technologies that the AESO and its customers may use.
Our stakeholder consultation and outreach programs continue to be an important
aspect of what we do. To successfully execute our mandate, we must continue to engage
and collaborate with our stakeholders, customers and the public. Stakeholder
consultation with the general public, including elected officials, special interest groups
and others provides us with a broad perspective as well as input into the plans we
develop.
In addition, we will continue to expand our public outreach program. Through this
program, we give Albertans factual and unbiased information about the electric industry
including how it works and who the players are. Our goal is to help Albertans better
understand how important electricity is to our quality of life, the competitiveness of our
provincial business and industry climate, and our overall economic future.
Our Current Achievements in 2010
The following is a summary of the initiatives that have been focused on in 2010:
•
Our resource plan strategy for 2010-2012 has been developed and is under
review. Succession planning activities for executive and management positions
are underway and our performance management program has been streamlined.
•
We continue to execute our 2010 capital plan as outlined in our Business Plan.
We have implemented a portfolio review process that enables business priorities
to be reviewed and adjusted on a regular basis and provides transparency on
project status.
•
The AESO is developing an enterprise architecture strategy that aligns with the
advancement of AESO’s business strategies and initiatives.
PAGE 13
2011 Updated Business Plan and Budget Proposal
•
The real-time operations planning capabilities (advanced applications) of the
replacement Energy Management System (EMS) are being utilized. A key
example was the use of its advanced planning features to minimize market
impacts during the spring storm period.
•
The fifth edition of Powering Albertans magazine was distributed to 1.3 million
Albertans in the second quarter of 2010.
Our Plan for 2011
AESO staff and technology drive a significant portion of our business activities and
related expenditures. As such, we are focused on efficiency improvements across our
core assets (people, technology and processes) that will improve our overall
effectiveness.
In 2011, the AESO will continue to advance its initiatives as outlined in the Business Plan
to:
1. Continue to refine our comprehensive resource strategy to attract, engage and
retain quality staff.
2. Continue to focus on becoming a technology knowledge leader by enhancing our
internal capability to evaluate, deploy and transfer emerging technology.
3. Continue to execute on the AESO’s public outreach plan.
4. Continue to enhance relationships with stakeholders.
PAGE 14
2011 Updated Business Plan and Budget Proposal
Our Financial Highlights
Our Financial Highlights
As part of this 2011 Updated Business Plan, we are presenting the adjusted 2011
budget. The process for developing the budget included detailed discussions and reviews
with all levels of management to assess the planned work on the 2011 business
initiatives. Based on these reviews, we then compiled our resource requirements. This
process ensured a consistent approach was used and that any gaps and overlaps in
work efforts were identified and addressed while aligning to the overall corporate
direction. This process ensures that we have sufficient resources (human and financial)
available to deliver on our business initiatives.
The financial information is presented in two sections: Section I reviews the 2010
financial results and Section II provides budget information for 2011. Additional
information is included in Appendices B to I.
PAGE 15
2011 Updated Business Plan and Budget Proposal
Section I – 2010
Costs
The following chart provides a summary of the AESO’s costs as of August 2010
compared to the budget.
Year-to-Date August 2010 Costs
($ million) ~ by production year
YTD August
Actual
Wires Costs
Transmission Line Losses
Operating Reserves
Transmission Must-Run
Other Ancillary Service Costs
Other Industry Costs
General and Administrative Costs
Interest
Amortization of Capital Assets
428.6
93.2
95.7
16.4
5.8
14.4
47.1
1.6
7.2
YTD August
Forecast
YTD August
Variance
2010
Forecast
358.4
102.5
55.3
15.2
6.3
14.6
50.0
1.3
11.8
70.2
(9.3)
40.4
1.2
(0.5)
(0.2)
(2.8)
0.2
(4.6)
537.5
173.6
112.5
22.3
9.5
21.9
75.2
2.0
17.7
Differences are due to rounding.
The following are descriptions of the notable variances in the year-to-date results.
Wires Costs
Wires costs as of August 2010 are $428.6 million compared to the AESO forecast of
$358.4 million, an increase of $70.2 million or 20 per cent based on the amounts paid
primarily to the owners of transmission facilities in accordance with their Commissionapproved tariffs.
Operating Reserves
Operating reserve costs in 2010 have been $40.4 million or 73 per cent higher than
forecast. This variance is due to significantly higher than forecast pool prices during May
and June as a result of planned and unplanned transmission outages and constraints
associated with severe spring storms. As operating reserve costs are indexed to the
hourly pool price, higher than forecast pool prices result in higher than forecast operating
reserve costs. Actual operating reserve volumes to the end of August were 5,268
gigawatt hours compared to forecast volumes of 5,524 gigawatt hours, a variance of 256
gigawatt hours or five per cent.
Amortization of Capital Assets
Key variables in developing the annual amortization budget are the type (impacting the
number of years for the amortization period), amount and timing (commission date) of
asset additions. For 2010, it has been concluded that the assumptions used for the type
and timing of the asset additions were significantly different than what has actually
occurred to date.
Additional detailed information on the year-to-date August 2010 costs is included in
Appendix B.
PAGE 16
2011 Updated Business Plan and Budget Proposal
Capital Expenditures
For 2010, we are anticipating capital expenditures of $22.6 million, which is slightly less
than the amended capital budget of $24.5 million6. The following table provides a
summary of current capital projects.
Capital Expenditures ($ million)
Key Capital Initiatives
1. Energy Management System7
2. Wind Integration
3. FEOC* Regulation Implementation
4. Congestion Management
5. Intertie Framework/Demand Response
6. Dispatch Tool - Upgrade
7. Transmission and Market Modelling
8. Information Management Platform
9. 2010 General Tariff Application
10. Alberta Reliability Standards
11. SCC** Expansion
Total Key Capital Initiatives
Other Capital Initiatives
Life Cycle Funding
Total Capital Spending
YTD August
Actual
2010
Remaining
2010
Estimate
0.5
0.0
3.4
0.5
0.1
4.5
4.5
3.2
1.4
1.8
1.5
0.4
5.2
1.8
3.4
1.4
2.3
0.0
1.5
3.4
0.9
0.1
9.7
6.3
6.6
12.2
10.4
22.6
*Fair Efficient Open Competition
** System Coordination Centre
Differences are due to rounding.
Key capital initiatives represent the most critical capital projects over the planning
period that the AESO believes must be completed within the identified timeframe.
Other capital initiatives are also necessary projects; however, they have more flexibility
in planning or delivery so timing is not as critical or they are lower priority than the key
capital initiatives.
6
The 2010 Plan reflects the June 2010 AESO Board decision to reduce the general capital budget by $2.1
million related to costs incurred for the validation phase of capital projects (transferred to the general and
administrative budget). Also included in this Board decision is a general capital reduction of $2.8 million related
to improved project execution and the deferral of previously planned projects. Subsequent to these
amendments, the approved 2010 general capital budget became $24.5 million.
7
General capital expenditures on the Energy Management System will occur for all costs greater than the
original AESO Board approved budget of $20.7 million. The current project costs are estimated to exceed the
budget by $1.4 million.
PAGE 17
2011 Updated Business Plan and Budget Proposal
Life cycle initiatives are typically replacement of end-of-life hardware and recurring
software upgrades.
Additional detailed information on capital projects is provided in Appendix H.
PAGE 18
2011 Updated Business Plan and Budget Proposal
Section II – 2011
Financial Outlook
In planning for 2011, we reviewed three distinct cost categories for review with
stakeholders and the AESO Board. These cost categories are the following:
•
Transmission Operating Costs (i.e., wires, transmission losses, ancillary
services)
•
General and Administrative and Interest Costs and Amortization
•
Capital Expenditures
For transmission operating costs, the previously described two-year budget approval
process does not apply. Due to the significance of the costs and the difficulty forecasting
pool price which is a key variable in determining certain transmission operating costs, on
an annual basis we prepare a one-year forecast for review and AESO Board approval. As
such, the 2011 forecast for transmission operating costs is the first time this information is
being presented.
For the remaining two cost categories, the 2011 budgets were reviewed and approved
during the two-year budget process that occurred in the latter part of 2009. While there
are no significant amendments to our 2011 business initiatives, we have used the
experiences that we have gained over the last twelve months and our current knowledge
to reassess the resources required to successfully deliver these business initiatives. The
focus of the following section is to highlight the adjustments that are required to the 2011
approved budget. Given this, this 2011 Updated Business Plan should be read in
conjunction with the 2010 – 2011 Business Plan and Budget Proposal document that was
distributed as part of the Budget Review Process in September 20093 and subsequently
approved by the AESO Board.
The results of the detailed review relating to the general and administrative budget have
shown that an additional $10.4 million or 14 per cent increase is required from the
previously approved $75.1 million budget for an adjusted budget of $85.5 million for
2011.
($ million)
2011 Approved Budget
75.1
Staff Additions (9 positions and 1% salary adj ↑)
Consulting:
Technical Support
Capital Project Validation Costs
IT Application System Maintenance
IT Maintenance Agreements and Licences
IT Managed Services
Various Smaller Adjustments
2011 Adjusted Budget (Proposed)
PAGE 19
1.7
2.4
2.1
1.1
5.6
1.0
2.0
0.1
85.5
2011 Updated Business Plan and Budget Proposal
This increase for 2011 is mainly attributable to the additional resource requirements
identified for the following areas:
•
We need additional staff and consulting resources to manage the workload
related to customer and system connections. It’s critical that we have sufficient
resources in place for the successful completion of the projects and to meet
targeted in-service dates. As we identified in discussing the 2010 business
initiatives, we have experienced significant growth in the number of connection
applications that need to be managed and we anticipate this workload to be
sustained for a number of years.
•
With the number of market initiatives currently being researched, reviewed or
implemented, we require additional resources to ensure this work can progress
within the timeline expected by industry. Our resources focus on the
development of alternatives, conducting stakeholder consultation, developing
rule and operating procedure changes and working on the design and
development of enhanced and new grid and market operating systems. In
addition, we plan to focus our efforts in 2011 on enhancing the generation and
load forecasting capabilities within the AESO which will provide more robust
information in areas such as market studies and the Long-term Transmission
System Plan.
•
The reliability and effectiveness of the AESO’s IT business systems are critical to
our success. We operate in a demanding environment for both the ongoing
operations of the grid and market systems (our 24/7 capabilities) and our ability
to design and adapt these systems to implement ongoing changes (i.e., rule
changes). In addition to this, our business operations continue to grow each year;
we have never experienced a period where our business changes have leveled
off, the business requirements for change continue year-over-year. To support
our IT infrastructure and development, we have identified additional resources
required to implement a new IT strategy for the sustainability of our infrastructure
support and for the ongoing maintenance support for our IT platforms.
•
With respect to capital expenditures, an annual budget of $29.0 million was
approved for 2011. Again, we have taken into consideration the experiences
gained in 2010, our business capacity to design and implement system solutions
and what our capital requirements will be for 2011. In addition to this, we have
factored in the impact of the change we made in 2010 to advance some of the
stages of project planning and execution which moved a portion of the capital
budget into the general and administrative cost category. After taking all of this
into account, we will reduce the 2011 capital budget by $2.0 million or seven per
cent to $27.0 million.
The only remaining cost category for AESO costs is Other Industry Costs which were
approved as part of the two-year budget for 2011 and have been assessed to require no
adjustments. Additional information on the 2011 Other Industry Costs is provided in
Appendix C.
PAGE 20
2011 Updated Business Plan and Budget Proposal
Costs
Transmission Operating Costs
The following chart provides a summary of transmission operating costs. Additional
information on the 2011 forecast methodology and descriptions of the cost categories is
provided in Appendix D.
$ Millions
1,200
900
600
300
0
2011 Plan
Wire Costs
Transmission Must Run
Transmission Operating Costs
2010 Forecast
2009 Actual
Transmission Line Losses
Other Ancillary Service Costs
2008 Actual
Operating Reserves
($ million) ~ by production year
2011
Plan
2010
Forecast
2009
Actual
2008
Actual
Wires Costs
Transmission Line Losses
Operating Reserves
Transmission Must-Run
Other Ancillary Service Costs
728.0
121.0
60.0
28.1
7.8
537.5
173.6
112.5
22.3
9.5
579.8
122.4
101.9
26.4
6.4
504.1
236.0
262.2
43.3
8.0
Transmission Operating Costs
944.9
855.4
836.9
1,053.6
Differences are due to rounding.
Wires
Wires costs represent the amounts paid primarily to owners of transmission facilities
(TFOs) in accordance with their Commission-approved tariffs and are not controllable
costs of the AESO. For 2011, we are forecasting wires costs of $728.0 million based on
the current applied-for or Commission-approved TFO costs (totaling $721.3 million) and
the AESO’s forecast for other included costs (totaling $6.7 million). This forecast
represents an increase of $190.5 million or 35 per cent compared to the 2010 forecast of
$537.5 million. The AESO notes that the 2010 wires costs forecast was updated to
$648.4 million to include additional amounts approved in Commission decisions prior to
the AESO filing its 2010 tariff application earlier this year.
PAGE 21
2011 Updated Business Plan and Budget Proposal
Transmission Line Losses
Transmission line loss costs are the cost of energy that is ‘lost’ as a result of electrical
resistance on the transmission lines. Our forecast for the 2011 transmission line loss
costs is $121.0 million based on 2.56 terawatt hours of energy and the July 12, 2010
EDC hourly pool price forecast (annual 2011 average pool price of $47 per MWh). This
forecast represents a $52.6 million or 30 per cent decrease from the 2010 forecast of
$173.6 million which was based on 2.64 terawatt hours of energy with the annual 2010
average pool price of $64 per MWh. While the forecasted volumes have decreased by
approximately three per cent in 2011 (2.64 to 2.56 terawatt hours), the reduction to costs
is primarily attributed to the lower pool price forecast.
Operating Reserves
The AESO purchases operating reserves from the ancillary services exchange and
through over-the-counter contracts with suppliers. Operating reserves are generating
capacity or load that is held in reserve and made available to the system controller to
manage the transmission system supply-demand balance in real-time. Operating reserve
prices are indexed to the hourly pool price and the AESO’s forecast for operating reserve
costs is based on the 2011 forecasted pool prices.
In 2011, we are forecasting that operating reserve costs will decrease to $60 million
which is a $52.5 million or 47 per cent decrease from the 2010 forecast. While the
forecast operating reserve volumes for 2011 are similar to the 2010 forecast, the
decrease in the forecast hourly pool price for 2011 is the primary reason for the forecast
cost decrease over 2010.
Transmission Must-Run
Transmission must-run (TMR) is generation required to be on-line and operating to
ensure reliability in specific areas of the AIES with insufficient transmission capacity.
In 2011, we are forecasting TMR costs to be $28.1 million which is a $5.8 million or 26
per cent increase from the 2010 forecast. Forecast TMR costs for 2011 are higher than
those for 2010 due to the decrease in the forecast hourly pool price for 2011 over 2010
and the addition of greenhouse gas costs associated with TMR operation.
Other Ancillary Services
Other ancillary services include the remaining services that the AESO procures for the
secure and reliable operation of the AIES such as load shed services and black start
services. Forecast costs for these services are $7.8 million which is $1.7 million or 18 per
cent lower than the 2010 forecast as a result of the 2010 forecast including estimated
costs for contracts that were under negotiation when the forecast was prepared which are
not included in the 2011 forecast in recognition of the uncertainty associated with the final
timing and costs associated with new contract negotiations.
PAGE 22
2011 Updated Business Plan and Budget Proposal
General and Administrative Costs
$ Millions
90
60
30
0
2011 Revised
2011 Budget
2010 Budget
2009 Actual
2008 Actual
Staff Costs
Contract Services & Consultants
Administration
Facilities
Computer Services and Maintenance
Telecommunications
General and Administrative Costs ($ million)
2011
Adjusted
2011
2010
Plan Budget8
2009
Actual
2008
Actual
Staff Costs
Contract Services & Consultants
Administration
Facilities
Computer Services and Maintenance
Telecommunications
48.4
16.6
7.2
4.8
6.9
1.5
46.4
11.7
7.1
4.7
3.8
1.4
44.4
14.5
7.0
4.7
3.3
1.3
41.6
14.3
6.9
3.6
3.5
1.3
37.4
11.8
6.5
3.1
2.6
1.3
General and Administrative Costs
85.5
75.1
75.2
71.1
62.7
Differences are due to rounding.
Additional information on general and administrative costs is provided in Appendices E
through G.
8
The 2010 Budget reflects the June AESO Board decision to increase G&A costs by $2.1 million related to
costs incurred for the validation phase of capital projects (transferred from the general capital budget).
PAGE 23
2011 Updated Business Plan and Budget Proposal
Staff Costs
In the demanding environment that we operate in, it is through the effort and commitment
of our staff that we are able to manage and deliver on the many initiatives before us on
an ongoing basis. It is through our management of the staff that we strive to operate
more effectively and efficiently.
For 2011, we identified that our approved staff complement of 344 people was not
sufficient. After much discussion and review of the number of new resources that can
effectively be integrated into the organization in a year, the adjusted staff budget for 2011
reflects 19 new staff positions; an increase from the 10 approved staff additions for 2011.
The primary focus for the additional resources will be on transmission related functions
relating to the number of connection projects and the related impact on regulatory filings
for Need Identification Documents. Information on the proposed new 2011 staff positions
is provided in Appendix F.
The following chart outlines the AESO’s permanent staff complement:
Number of Staff
400
350
292
300
250
227
243
2005
2006
319
334
344
2010
2011
Budget
353
266
200
150
2007
2008
2009
2011
Update
Contract Services & Consultants
In preparing the 2011 budget last fall, we committed to reducing the use of external
consultants and contractors; while that goal remains, the adjusted 2011 budget reflects
an increase to this cost category. While cost reductions have occurred in several areas of
consulting costs (i.e., peak workload, co-sourcing IT support), there are three areas that
will incur higher costs. Appendix G provides summary information on the 2011 consulting
initiatives.
•
Technical Support – To support initiatives such as the development of the
competitive procurement process and various market design plans, specialized
technical resources are required to supplement our staff resources. For IT, technical
resources are required to address one-time initiatives to facilitate future efficiencies
through enhanced processes and application/data management.
•
IT Application System Maintenance – Resources are required to provide ongoing
maintenance of existing systems to ensure these systems continue to provide
reliable and accurate functionality (non-capital costs). Cost incurred for this type of
PAGE 24
2011 Updated Business Plan and Budget Proposal
work have occurred in previous years but have been shown to be increasing with the
number and complexity of the AESO applications which has prompted separate
disclosure in the budget.
•
Capital Project Validation Costs – To improve the analysis that enables earlier
capital project selection (validation) and improved project execution, we have
advanced some of the stages of the project planning and execution (e.g., scoping of
business requirements, alternative solutions, cost estimates and detailed
implementation/integration plans). These changes have resulted in costs previously
considered capital expenditures to become general and administrative costs; these
do not represent new costs to the AESO. These costs are consistent with the 2010
budget amendment that was approved by the AESO Board in June 2010 for this
purpose.
Computer Services and Maintenance
As the AESO invests in IT infrastructure and applications to support the organization’s
business operations, ongoing costs are incurred to purchase annual software operating
licences and maintenance agreements for these systems with high availability
requirements that are supported by premium class maintenance and support
agreements.
Originally, we anticipated computer services and maintenance costs in 2011 to be $3.8
million which was $0.5 million higher than the 2010 budget of $3.3 million. However, for
2010, we are anticipating our annual costs to be $3.8 million due to additional
maintenance and support agreements required to support our systems due to new
applications and user growth. Our current and historical experience shows annual growth
in IT infrastructure and applications (additions exceeding retirements), and as such, it has
been determined that an additional $1.0 million of costs will be incurred in 2011 above
the existing 2011 budget and the anticipated 2010 actual costs.
In 2011, we have also investigated a new strategy for the IT infrastructure support; the
transition to a managed services model for IT infrastructure operating support (network,
server, database and storage). A managed service arrangement is where the AESO
would transfer the day-to-day management and operations of a support function (not the
strategic management) to a third party provider.
Our strategy with this new support approach would be to leverage available technical
resources and tools to provide more effective support for our critical processes. Our
assessment shows that we need to either increase our internal resources or to implement
a managed services model. While our infrastructure management is key to our business
success, it is not our core business and we want to ensure we do not expend resources
building this expertise. The managed services approach is an existing and well
established approach in industry to achieve resource efficiencies and improve reliability.
The 2011 adjusted budget includes $2.0 million in costs for the transition in 2011 which
inevitably incorporates some duplication of resources through the transition period.
PAGE 25
2011 Updated Business Plan and Budget Proposal
Interest Costs and Amortization
Interest Costs and Amortization ($ million)
2011
Adjusted
Interest
Amortization of Capital Assets
2.6
17.1
2011
2010
Plan Budget8
2.6
23.2
2.0
17.7
2009
Actual
2008
Actual
1.3
9.6
1.4
7.8
Interest
Interest expense is incurred as a result of bank debt held throughout the year and the
associated borrowing rate. No adjustments are required to the 2011 budget.
Amortization of Capital Assets
Capital assets are amortized over their estimated useful lives in accordance with
generally accepted accounting principles and reviewed on an annual basis. Based on the
information available since the 2011 budget was first prepared in mid-2009 (i.e., the
types, amount and timing of the capital expenditures that have occurred) and a current
estimate for the expenditures for the remainder of 2010 and 2011, an adjusted budget
amount for amortization has been determined. Additional information on the capital
projects is provided in Appendix H.
PAGE 26
2011 Updated Business Plan and Budget Proposal
Capital Expenditures
A detailed review of the capital expenditures for 2011 recently occurred taking into
consideration the progress we have made on our 2010 initiated projects, our capacity to
design and implement system solutions with available resources and what our
requirements will be for 2011. Based on these findings, we have adjusted our 2011
capital expenditure budget to $27.0 million from the 2011 approved budget of $29.0
million.
The AESO’s capital portfolio management process facilitates a regular review and
prioritization of capital projects to ensure we meet business requirements and, at the
same time, achieve the most beneficial and cost-effective results. With this capital
portfolio management process in place and our need for flexibility to re-evaluate capital
plans throughout the year, we consider this business planning process as an opportunity
to establish a level of capital expenditures for use in the capital portfolio management
process (the capital ‘envelope’) and not the review and approval of specific capital
projects as part of the annual budget approval process.
To arrive at our adjusted 2011 capital expenditure budget or capital envelope, we
completed an assessment of the anticipated projects for 2011 in addition to considering
where we are in our 2010 plan. The following is a preliminary list of projects that may
occur in 2011 based on our current knowledge and our 2011 business initiatives. We
know things will change - both priorities and projects - and we will use the capital portfolio
management process throughout the year to manage these changes. We have had
success with this process in 2010 and plan to continue to mature this process in 2011.
The following information provides details on our current capital plan for 2011. Similar to
what has occurred in 2010, the actual projects that will be completed in 2011 will vary,
and include the addition of projects yet to be determined, deferral of projects in this plan
or the elimination of projects deemed no longer necessary. It is anticipated that the key
capital initiatives will be delivered as scheduled.
Additional information on capital projects is provided in Appendix H.
PAGE 27
2011 Updated Business Plan and Budget Proposal
Capital Expenditures ($ million)
2011
Adjusted
2011
Plan
2010
Est.
2010
2009
6
Plan Actual
Key Capital Initiatives
1. Energy Management System
2. Wind Integration
3. FEOC* Regulation Implementation
4. Congestion Management
5. Intertie Framework/Demand Response
6. Dispatch Tool - Upgrade
7. Transmission and Market Modelling
8. Information Management Platform
9. 2010 General Tariff Application
10. Alberta Reliability Standards
11. SCC** Expansion
Total Key Capital Initiatives
Other Capital Initiatives
Life Cycle Funding
2.8
2.9
2.7
1.9
1.3
1.3
0.1
0.2
13.2
7.3
6.5
3.2
3.0
3.0
0.3
1.9
1.0
0.5
1.8
0.6
3.3
18.6
5.0
5.4
1.4
2.3
0.0
1.5
3.4
0.9
0.1
9.7
6.3
6.6
3.3
2.3
0.1
1.5
3.4
0.9
0.1
10.8
6.3
6.6
9.7
1.6
4.4
0.8
16.5
4.6
1.3
Total Capital Spending
27.0
29.0
22.6
24.5
22.4
*Fair Efficient Open Competition
** System Coordination Centre
Differences are due to rounding.
Key capital initiatives represent the most critical capital projects over the planning
period that the AESO believes must be completed within the identified timeframe.
Other capital initiatives are also necessary projects; however, they have more flexibility
in planning or delivery so timing is not as critical or they are lower priority than the key
capital initiatives.
Life cycle initiatives are typically replacement of end-of-life hardware and recurring
software upgrades.
PAGE 28
2011 Updated Business Plan and Budget Proposal
Revenue
The AESO recovers its operating and capital costs through three separate revenue
sources. Each is designed to recover the costs directly related to a specific service as
well as a portion of the shared corporate services costs. The AESO’s operations integrate
the functions of transmission, energy market and load settlement to maximize benefits
under the Electric Utilities Act (EUA). This integration results in cost allocations in many
parts of the organization for the purpose of cost recovery. In determining the revenue
requirement on a function-by-function basis, all AESO costs are assigned or allocated to
one of the three functions. Additional information on the 2011 cost allocation
methodology is provided in Appendix I.
Transmission
The AESO is responsible for paying the costs of managing the provincial transmission
system and recovering the costs through a tariff approved by the Commission. The tariff
is designed to allocate the costs to all users of the transmission system based on level of
usage. The 2011 budget costs related to the transmission function will be incorporated
into the AESO's rates either in a tariff refiling (if one is required in the current 2010 tariff
proceeding) or in a separate rates update application.
Energy Market
The AESO recovers the costs of operating the real-time energy market through an
energy market trading charge on all megawatt hours (MWhs) traded. Based on the
adjusted 2011 budget and an updated trading volume forecast, an energy market trading
charge of 29.6¢ per MWh traded is required for 2011.
Proposed Trading Charge Components
(¢ per MWh)
2011
Adjusted
2011
Budget
2010
Budget
2009
Budget
AESO Costs
Energy Market Deficit / (Surplus)
24.8¢
(1.1)
22.1¢
-
20.1¢
1.0
15.7¢
(2.6)
AESO Component
Commission’s Portion of
Energy Market Administration Fee
23.7
22.1¢
21.1¢
13.1¢
5.9
5.9
6.1
10.1
Total
29.6¢
28.0¢
27.2¢
23.2¢
Differences are due to rounding.
PAGE 29
2011 Updated Business Plan and Budget Proposal
Proposed Trading Charge Components
($ million)
2011
Adjusted
2011
2010
2009
AESO Costs
Energy Market Deficit / (Surplus)
30.6
(1.4)
27.0
-
23.7
1.2
19.3
(3.2)
AESO Component
Commission’s Portion of
Energy Market Administration Fee
29.2
27.0
24.9
16.1
7.2
7.2
7.2
12.4
Total
36.4
34.2
32.1
28.5
Differences are due to rounding.
These trading charge amounts are independent of the Market Surveillance Administrator
(MSA) charge. The 2011 MSA cost recovery amount will be communicated to the AESO
in the latter part of 2010. The MSA cost recovery amount is approved by the Chair of the
Commission in an independent budget process.
Load Settlement
Expenses that we incur to provide services related to administering provincial load
settlement are charged to the owners of electric distribution systems and wire service
providers conducting load settlement under Commission Rule 21.
PAGE 30
2011 Updated Business Plan and Budget Proposal
Appendix A: Multi-Year Budget Process
Results of Forecast
Related Budget Process
If the forecast is below or in line with
the previously approved budget
amount.
At management’s discretion, any under-budget
amounts will be used to advance future year
business priorities or will be accumulated in the
deferral accounts.
If the forecast is above the
previously approved budgeted
amount and the amount is
determined to be a ‘manageable
variance’.
If the forecast is above the
previously approved budgeted
amount and the amount is in excess
of a ‘manageable variance’.
Management would request approval from the
AESO Board and subsequently issue a
stakeholder communication.
Management will review the new funding
requirements with stakeholders, followed by a
request for approval from the AESO Board.
A manageable variance is a forecast to actual variance that would be:
•
•
less than 10 per cent of budgeted general and administrative expenditures
less than 20 per cent of budgeted capital
PAGE 31
2011 Updated Business Plan and Budget Proposal
Appendix B: Year-To-Date August 2010 Financial Results Detail
Costs
Transmission Operating Costs
The following chart provides the transmission operating costs as of August 2010
compared to the forecast.
Year-to-Date August 2010 Transmission Operating Costs
($ million) ~ by production year
YTD August
Actual
YTD August
Forecast
YTD August
Variance
2010
Forecast
Wires Costs
Transmission Line Losses
Operating Reserves
Transmission Must-Run
Other Ancillary Service Costs
428.6
93.2
95.7
16.4
5.8
358.4
102.5
55.3
15.2
6.3
70.2
(9.3)
40.4
1.2
(0.5)
537.5
173.6
112.5
22.3
9.5
Transmission Operating Costs
639.6
537.7
102.0
855.4
Differences are due to rounding.
Transmission operating costs represent wires, transmission line loss and ancillary
services costs. As of August 2010, costs are higher than forecast by $102.0 million or 19
per cent. This variance is attributed to significant variances in wires and operating
reserve costs.
Wires Costs
Wires costs as of August 2010 are $428.6 million compared to the AESO forecast of
$358.4 million, an increase of $70.2 million or 20 per cent based on the amounts paid
primarily to the owners of transmission facilities in accordance with their Commissionapproved tariffs.
Transmission Line Losses
The cost of transmission line losses is $9.3 million or 9 per cent lower than forecast in the
first eight months of 2010. The average hourly pool price has been $56 per megawatt
hour compared to a forecast of $64 per megawatt hour used for the line loss forecast.
During this period, the volume of transmission line losses has been 26 gigawatt hours or
two per cent less than the forecast (actual volumes of 1,758 gigawatt hours compared to
the forecast of 1,783 gigawatt hours). The variance is due to a combination of higher
volumes in low pool price hours and lower volumes in high price hours as compared to
forecast.
PAGE 32
2011 Updated Business Plan and Budget Proposal
Operating Reserves
Operating reserve costs in 2010 have been $40.4 million or 73 per cent higher than
forecast. This variance is due to significantly higher than forecast pool prices during May
and June as a result of planned and unplanned transmission outages and constraints
associated with severe spring storms. As operating reserve costs are indexed to the
hourly pool price, higher than forecast pool prices result in higher than forecast operating
reserve costs. Actual operating reserve volumes to the end of August were 5,268
gigawatt hours compared to forecast volumes of 5,524 gigawatt hours, a variance of 256
gigawatt hours or five per cent.
Transmission Must-Run (TMR)
Transmission must-run costs in 2010 are $1.2 million or 8 per cent higher than forecast.
This increase is attributable to a greater difference between the contract benchmark price
and the pool price in months where the pool price was lower than forecast. TMR costs
are based on the calculation of a benchmark price and a payment equal to the difference
between the benchmark price and the pool price is only made when the pool price is
lower than the benchmark price. As a result, while the high pool prices in May and June
resulted in lower TMR payments, it was offset by the higher cost incurred in months
where the pool prices were lower than forecast.
Other Ancillary Service Costs
Other ancillary services include the remaining services that the AESO procures for the
secure and reliable operation of the AIES. These services are procured through bilateral
contracts with suppliers. Over the first eight months of 2010, these costs are lower than
forecast due to a delay in finalizing a new contract with a service provider.
Other Industry Costs
The following chart provides other industry costs as of August 2010 compared to the
AESO’s approved budget.
Year-to-Date August 2010 Other Industry Costs ($ million)
YTD August YTD August
Actual
Budget
Commission Fees – Transmission
Commission Fees – Energy Market
External Regulatory Costs
WECC/NWPP* Costs
Balancing Pool
Other Industry Costs
YTD August
Variance
2010
Budget
7.9
4.6
0.0
2.0
-
7.2
4.8
0.3
2.3
-
0.7
(0.2)
(0.3)
(0.3)
-
10.8
7.2
0.5
5.4
-
14.4
14.6
(0.2)
21.9
*Western Electricity Coordinating Council/Northwest Power Pool
Differences are due to rounding.
PAGE 33
2011 Updated Business Plan and Budget Proposal
Other industry costs are costs that are not within the control of the AESO; rather, these
costs are determined by third parties such as the Commission or the board of directors
for the Western Electricity Coordinating Council/Northwest Power Pool (WECC/NWPP).
For 2010, it is anticipated that other industry costs will be close to the budgeted amount.
General and Administrative Costs
The following chart provides the general and administrative costs as of August 2010
compared to the AESO’s approved budget.
60
50
$ Millions
40
30
20
10
0
Actual
Budget
Staff Costs
Contract Services & Consultants
Administration
Facilities
Computer Services and Maintenance
Telecommunications
Year-to-Date August 2010 General and Administrative Costs ($ million)
YTD August
Actual
YTD August
Budget*
YTD August
Variance
2010
Budget8
Staff Costs
Contract Services & Consultants
Administration
Facilities
Computer Services and Maintenance
Telecommunications
29.4
8.2
3.2
3.1
2.4
0.9
29.6
9.5
4.7
3.1
2.2
0.9
(0.2)
(1.3)
(1.5)
(0.0)
0.2
0.0
44.4
14.5
7.0
4.7
3.3
1.3
General and Administrative Costs
47.1
50.0
(2.8)
75.2
* YTD Budget typically reflects the 2010 budget divided by 12 months multiplied by the number of months
reported for the current year actuals - actual spending patterns will vary.
Differences are due to rounding.
PAGE 34
2011 Updated Business Plan and Budget Proposal
Staff Costs
Operations at the AESO are labour intensive and work is completed through the efforts of
our staff or with the assistance of contractors or consultants. It is anticipated that staff
costs will be close to the budgeted amount for 2010.
Contract Services & Consultants
As of August, costs related to contractors or consultants and audit/review engagements
have been lower than budgeted. Delays or changes to planned work initiatives in the
Corporate Security and Corporate Communication departments are contributing to the
lower expenditures for contractors or consultants as of August. It is anticipated that the
costs will be incurred in the latter part of 2010 related to planned audit/review
engagements to an amount close to the full annual budget.
Administration
Administration costs include corporate communications, recruiting, travel and training,
AESO Board fees and office costs that present the general operating costs of the
company. Based on current estimates, it is anticipated that actual costs related to
corporate communications and travel and training will continue to be lower than budget at
the end of the year.
Facilities
There have been no significant unanticipated expenditures related to the facilities.
Computer Services and Maintenance
Ongoing costs are incurred to purchase annual software operating licences and
maintenance agreements for the AESO’s systems. Each year the comprehensive list of
all AESO systems is compiled to capture the existing and anticipated operating licences
and maintenance agreements. For 2010, it is anticipated that we will be approximately
$0.1 million lower than budget at the end of the year.
Telecommunications
Current and year-end costs for telecommunications are anticipated to be close to budget.
PAGE 35
2011 Updated Business Plan and Budget Proposal
Interest and Amortization Costs
The following chart provides the interest and amortization costs as of August 2010
compared to the AESO’s approved budget.
Year-to-Date August 2010 Costs ($ million)
Interest
Amortization of Capital Assets
YTD August
Actual
YTD August
Budget
YTD August
Variance
2010
Budget
1.6
7.2
1.3
11.8
0.2
(4.6)
2.0
17.7
Differences are due to rounding.
Interest
Higher than anticipated borrowing rates in 2010 account for actual interest costs on
AESO credit facilities being higher than budgeted.
Amortization of Capital Assets
Key variables in developing the annual amortization budget are the type (impacting the
number of years for the amortization period), amount and timing (commission date) of
asset additions. For 2010, it has been concluded that the assumptions used for the type
and timing of the asset additions were different than what has actually occurred to date.
Capital Expenditures
The AESO has three main asset categories: people, technology and processes. While we
invest in all three, only the technology assets (computer systems and system
coordination centre) are our focus for capital expenditures. The development and
acquisition of capital assets is a major budget component given the AESO’s significant
reliance on IT infrastructure and applications to carry out our operations. As with all IT
intensive organizations, our challenge is to find the right balance between implementing
technology advancements, determining the level of IT development that can be
supported by business operations and then establishing the funding requirements to
make it all happen.
To address these challenges, we have implemented and continue to enhance a vetting
and prioritization process to ensure capital expenditures achieve the most beneficial and
cost-effective results to continue to meet operating requirements. We call this the
portfolio management process. As we progress through a planning year, capital projects
are reviewed on an ongoing basis to assess progress and budget spending and identify
unanticipated issues. We also review and prioritize any new requirements that are
identified and determine how they align with existing work. This is a continual process to
ensure alignment of priorities and business needs.
For 2010, we are anticipating capital expenditures of $22.6 million, which is consistent
with the 2010 amended budget6.
Additional information on capital projects is provided in Appendix H.
PAGE 36
2011 Updated Business Plan and Budget Proposal
Appendix C: 2011 Other Industry Costs
Other industry costs represent fees or costs paid based on regulatory requirements or
membership fees for industry organizations; the amounts of which are not under the
control of the AESO. These costs relate to the annual administration fee for the
Commission, external regulatory costs for the cost recovery related to the AESO’s
regulatory proceedings and the AESO’s share of Western Electricity Coordinating Council
(WECC) and Northwest Power Pool (NWPP) membership fees.
Other Industry Costs ($ million)
2011
Plan
2010
Budget
2009
Actual
2008
Actual
Commission Fees – Transmission
Commission Fees – Energy Market
External Regulatory Costs
WECC/NWPP* Costs
Balancing Pool
10.8
7.2
0.1
3.4
-
10.8
7.2
0.5
3.4
-
10.5
7.1
0.2
3.6
-
8.6
5.2
0.7
2.2
-
Other Industry Costs
21.5
21.9
21.4
16.7
*Western Electricity Coordinating Council/Northwest Power Pool
Differences are due to rounding.
PAGE 37
2011 Updated Business Plan and Budget Proposal
Appendix D: Transmission Operating Cost Definitions
Transmission Line Losses
The annual volume forecast for transmission line losses is based on the following:
•
The latest forecast of Alberta Internal Load (includes ‘behind-the-fence’ loads
and new Demand Transmission Service (DTS) contracts).
•
The grid facility profiles of transmission and generation (existing, new,
decommissioned).
•
Transmission must-run (TMR) forecasts based on the latest operating policies
and procedures (OPPs) and updated generation stacking order based on the
latest 12 months of actual dispatch behaviour (generators, import and export).
•
Current export availability transfer capability (ATC) limits.
•
A loss forecast based on the AIES hourly net to grid levels from the settlement
system.
The annual forecast for transmission line losses is the accumulation of the hourly
forecasted loss volumes priced at the most current hourly pool price forecasted for that
period. The AESO has used the July 12, 2010 EDC Associates Ltd. commodity price
forecast (ESP Volume 10 Issue 28).
Ancillary Services
Ancillary services are procured by the AESO to ensure ongoing reliability of the
transmission system through contracts which include exchange-traded or over-thecounter contracts, generation capacity and load reduction capabilities, as well as
contracts that are entered by way of competitive processes. The AESO has entered into
various contracts for ancillary services that include operating reserves, transmission
must-run (TMR), load shed and system restoration.
Operating Reserves
Operating reserves are procured in two ways: through an online exchange and through
over-the-counter contracts. All providers of operating reserves traded on the exchange
are paid the market clearing price whereas all providers who sell volumes over-thecounter are paid their offer price. In exchange for this payment, the AESO obtains the
right to utilize the provider’s energy and/or capacity as reserves. The majority of
operating reserve offer prices are indexed to the pool price.
Operating reserves are comprised of three types of active reserves, with the minimum
levels of operating reserves based on standards established by the Western Electricity
Coordinating Council (WECC):
•
Regulating reserves – The provision of generation and load response capability,
including capacity, energy and maneuverability which respond to the AESO’s
automatic generation control (AGC) system. In Alberta, regulating reserves track
variations in the load that cannot be met with energy dispatches. The volumes of
PAGE 38
2011 Updated Business Plan and Budget Proposal
regulating reserve are specified as a range in megawatts over which a level of
control is required by the AGC system.
•
Spinning reserves – Unloaded generation that is synchronized to the system,
automatically responsive to frequency deviation and ready to serve additional
demand following an AESO system controller directive. A customer offering
spinning reserves must be able to ramp up their generator within 10 minutes in
response to a system controller directive due to a system contingency.
Spinning and supplemental reserves are required in order to restore frequency
following the loss of generation in Alberta or in the WECC region. Alberta must
comply with WECC policies for maintaining specific volumes of spinning and
supplemental reserves in order to maintain reliability.
•
Supplemental reserves – While similar to spinning reserves, supplemental
reserves are not required to respond to frequency deviations. They include
unloaded generation, off-line generation or system load that is ready to serve
additional demand (generator), or reduce demand (load), within 10 minutes of a
directive from the system controller.
Active Operating Reserves
Active operating reserves are the operating reserves that are forecast by the AESO as
necessary to operate the AIES securely and meet the AESO’s reliability obligations to the
WECC.
Standby Reserves
Standby reserves provide additional reserves for use when the resources available under
the active portfolio are insufficient. Payments for standby reserves include a premium for
the option to activate the standby reserves and a price that is paid if the reserves are
activated.
Transmission Must-Run (TMR)
TMR is generation required to be on-line and operating to ensure reliability in specific
areas of the AIES with insufficient transmission capacity. This service is typically
procured through long-term commercial contracts.
The structure of TMR agreements compensates the TMR provider using fixed and
variable payments. Variable payments are based upon keeping a generator whole up to
an established “benchmark price” based on the generating unit’s specific heat rate and
variable operating and maintenance costs. When a unit is operating for TMR and the pool
price exceeds the benchmark price, no TMR payment is made and the service provider
receives the pool price for the energy provided. When a unit is operating for TMR and the
pool price is lower than the benchmark price, the service provider is paid the difference
between the benchmark price and the pool price under the TMR agreement in addition to
receiving the pool price for the energy provided.
The majority of TMR costs are variable. The fixed payment the AESO makes to a TMR
provider does not change with heat rate or gas price, but is prorated based on the
availability of the unit and allows the AESO to call upon the facility for TMR, if required.
PAGE 39
2011 Updated Business Plan and Budget Proposal
Appendix E: 2011 General and Administrative Cost Detail
Staff Costs
Staff Costs are determined through the analysis and conclusions reached for several key
budget variables or factors:
• Base pay adjustments for existing staff or an overall change in the AESO’s
compensation philosophy - While the compensation philosophy has remained
unchanged in 2011, we have incorporated a three per cent base pay adjustment in
2011 for general salaries (2011 approved budget - two per cent adjustment). This
adjustment percentage is the result of current economic indicators (such as the
Consumer Price Index and salaries surveys). At the end of each year during the
company’s annual performance review process, the AESO Board’s Human
Resources, Compensation and Nominations Committee reviews all relevant market
information to determine the final corporate base pay adjustment.
• New staff additions - Through a focused approach to re-evaluate and, where
appropriate, realign the efforts of current staff, we require 19 new staff positions in
2011 (2011 approved budget - 10 new staff positions). The start dates for new staff
additions are staggered throughout the year in the budget. Appendix F provides the
work focus and job descriptions for the new staff positions.
• Incentive compensation - Our philosophy is to expect the best and for our people
to find new, innovative and efficient ways to fulfil our mandate with a focus on
customer service. When this occurs, our incentive compensation will be adjusted to
reflect this. In preparing this budget, we have confidence in our approach to deliver
on our goals and have reflected this in our incentive compensation with budgeted
incentive compensation at 60 per cent of eligibility (2011 approved budget - 60 per
cent).
• Vacancy rate - Due to normal staff attrition and the time it takes to find and hire
new staff, there are always staff positions that remain vacant for part of the year.
We are anticipating the vacancy rate to be eight per cent in 2011 (2011 approved
budget – eight per cent), which is consistent with what we anticipate our actual
annual vacancy rate will be for 2010.
• Benefit costs - In addition to their salary, each employee participates in the
company’s comprehensive benefit plan. For the company, this represents costs
such as health and dental coverage, defined contributions for retirement savings
and government payroll costs. We present these costs as a percentage of salary
costs to determine the ‘benefits load factor’, which has been budgeted at 22 per
cent of salary costs (2011 approved budget – 22 per cent).
PAGE 40
2011 Updated Business Plan and Budget Proposal
Contract Services & Consultants
Contract Services & Consultants ($ million)
2011
Adjusted
2011
Plan9
2010
Budget
2009
Actual
2008
Actual
Consulting
Legal
Audit/Reviews
15.1
0.8
0.6
10.3
0.8
0.6
12.9
0.9
0.6
12.9
1.0
0.4
10.6
0.9
0.3
Contract Services & Consultants
16.5
11.7
14.5
14.3
11.8
Differences are due to rounding.
Consulting - We use consultants to supplement the AESO’s staff for three general
purposes. It is not practical for the AESO to retain staff that have all the skill sets that
may be required from time to time. In these circumstances, we utilize consultants to
either complete the work or assist in training AESO staff. Consultants are also used to
address workload peaks to maintain seamless operations and continual progression on
key initiatives. And finally, we consolidate or co-source support services for our IT
infrastructure to facilitate more coordinated and reliable service support. Appendix G
provides summary information on the consulting initiatives.
Legal – Legal counsel is retained to support general business operations by
supplementing in-house legal resources and to provide expertise on legal matters such
as regulatory filings.
Audit/Review – To conduct audits or reviews on AESO or industry stakeholder
processes, systems or reporting, we will use the professional services of others to assist
in these initiatives. Several examples are the financial statement audit, transmission
facility owner compliance on the competitive procurement for transmission facility projects
assigned by the AESO, meter point audits and internal operation audit on key AESO
processes.
9
2011 Budget approved in AESO Board Decision ‘2010 and 2011-BRP-001’ issued January 2010
PAGE 41
2011 Updated Business Plan and Budget Proposal
Administration
Administration Costs ($ million)
2011
Adjusted
2011
Plan9
2010
Budget
2009
Actual
2008
Actual
AESO Board Fees
Travel and Training
Insurance
Other Administrative
0.6
2.2
0.6
3.8
0.6
2.4
0.6
3.5
0.6
2.3
0.5
3.5
0.6
1.9
0.5
3.9
0.5
2.1
0.5
3.4
Administration
7.2
7.1
7.0
6.9
6.5
Differences are due to rounding.
AESO Board Member Fees – The AESO is governed by the AESO Board whose
members are appointed by the Alberta Minister of Energy. While the number of Board
members can vary from time to time, there can be no more than nine members with their
compensation based on a retainer fee and additional fees based on their Board
committee involvement and time spent on corporate matters.
Travel and Training – The travel and training category covers costs incurred for general
business travel, staff training and associated travel, corporate meetings and related
meals. In addition, costs related to stakeholder open houses for proposed transmission
projects and enhanced public outreach/education are included in this category.
Insurance – The EUA provides limited statutory protection for the business risks of the
AESO organization, directors, officers and staff. To ensure business risks are properly
insured, we carry insurance for exposures not covered by the EUA, specifically for direct
damages resulting from the AESO’s negligence. The AESO has statutory protection for
indirect damages, which would typically be the most costly damages that would occur for
business interruption and lost revenue.
Other Administrative Costs – This includes corporate relations, general office costs,
printing, recruiting, corporate subscriptions/memberships and professional membership
fees. Additional costs are planned for 2011 related to the design, printing and distribution
of a second Powering Albertans publication and additional consultation costs for
transmission projects.
PAGE 42
2011 Updated Business Plan and Budget Proposal
Facilities
Facilities Costs ($ million)
2011
Adjusted
2011
Plan9
2010
Budget
2009
Actual
2008
Actual
4.8
4.7
4.7
3.6
3.1
Rent
Under two long-term lease agreements ending in 2014, we lease approximately 80,000
square feet of office space in downtown Calgary. The AESO owns and operates the
system coordination centre and has approximately 30,000 square feet of office and
building management space.
To accommodate our redundant computer systems to support seamless operating
performance in the event of a disruption to the operations at the system coordination
centre, we also lease additional office space for our back-up facility. Prior to 2010, both
the lease and operating costs for the back-up facility were included in the computer
services and maintenance cost category.
Computer Services and Maintenance
Computer Services and Maintenance ($ million)
IT Maintenance and Services
2011
Adjusted
2011
Plan9
2010
Budget
2009
Actual
2008
Actual
6.9
3.8
3.3
3.5
2.6
As we continue to invest in IT infrastructure to support our business operations, ongoing
costs are incurred to purchase annual software operating licences and maintenance
agreements for these systems with high availability requirements that are supported by
premium class maintenance and support agreements. In 2011, we have also
incorporated the costs related to a new strategy for the IT infrastructure support; the
transition to a managed services model for IT infrastructure operating support (network,
server, database and storage).
Telecommunications
Telecommunications ($ million)
Telecommunications
2011
Adjusted
2011
Plan9
2010
Budget
2009
Actual
2008
Actual
1.5
1.4
1.3
1.3
1.3
The AESO incurs costs for network systems and telecommunications to support general
business operations and, to a much larger extent, to support real-time operations. The
strategy for developing and maintaining the telecommunication infrastructure is based
upon the requirement for high availability, which necessitates redundancies of services
and equipment.
PAGE 43
2011 Updated Business Plan and Budget Proposal
Appendix F: 2011 Staff Addition Detail
Additional
2011 Staff
Requirements
Staff Additions
Transmission
Director, Competitive Procurement
1
Program Manager
1
Project Managers
2
Studies Engineer
1
Markets
Senior Economist
1
Regulatory
Manager, Regulatory Services
1
Corporate Services
Technical Writer
1
Community Relations Advisor
1
Total
9
TRANSMISSION (5 POSITIONS)
Director, Competitive Procurement – This resource will provide leadership and
direct, coordinate and integrate the development and implementation of a competitive
procurement framework for Alberta’s Critical Transmission Infrastructure (CTI)
projects.
Program Manager – This resource will provide an oversight and coordination role for
the successful delivery of CTI and other major regional projects within a specified
geographic region.
Project Managers (x2) – These resources will assume the project management roles
for CTI, major regional projects and customer connections. They will work closely with
the Transmission Facility Owners (TFOs) on the communication of project delivery
requirements and milestones.
Studies Engineer – This resource will provide additional study support for connection
proposals and technical issues related to customer connection and planning.
MARKETS (1 POSITION)
Senior Economist – This resource will provide assistance in the planning,
development and maintenance of economic models used for forecasting purposes,
including the models used for the long-term load forecast.
PAGE 44
2011 Updated Business Plan and Budget Proposal
REGULATORY (2 POSITIONS)
Manager, Regulatory Services and Technical Writer – These resources will
manage and coordinate various hearings and supporting processes for both Need
Identification Documents (NID) applications and market rules and will compile and
write NID documents respectively.
CORPORATE SERVICES (1 POSITION)
Community Relations Advisor – This resource will provide assistance for
stakeholder relations and community/public outreach including identifying and
facilitating opportunities to build relationships with key stakeholders and assist in the
planning and implementation of communications strategies for key projects.
PAGE 45
2011 Updated Business Plan and Budget Proposal
Appendix G: 2011 Consulting Cost Detail
2011
2011
Adjusted
Plan
Technical Standards/Studies – execution of studies and/or
assistance with standards development for Alberta Reliability
Standards, Critical Transmission Infrastructure development,
interties, wind integration, new technologies, load forecasting,
security and system restoration
1.3
1.4
Communications – general corporate communications support
including transmission initiatives
0.7
0.7
Communications – analysis of the effectiveness of Powering
Albertans, research and polling
0.3
Competitive Procurement – assist with competitive oversight and
procurement processes including engineering cost estimates
0.7
-
Connection Projects – complete studies and connection proposals
for wind generation, industrial projects, etc.
0.6
0.6
Market Development and Design – technical support on market
initiatives including expertise from other jurisdictions
0.6
0.3
Forecasting Initiatives – long-term plan modeling incorporating
new scenarios resulting from supply adequacy/market sustainability
assessments in addition to new load and generation forecasts
0.5
-
IT Process Enhancements – improve maturity of IT processes and
consolidate existing data warehouses
0.4
-
Corporate Strategy – develop and implement a strategy for
organizational changes including development of an operating
model to deliver business results that are aligned to the strategic
plan; development and implementation of human resource
strategies and government relations
0.4
0.9
Development of IT Enterprise Architecture – further
development of IT strategy and architecture plans for technology,
information, and applications
0.4
-
Energy Trading System (ETS) Project Initiation – research and
preparation of request for information and request for proposal
documents and vendor analysis for replacement of the ETS and
related market systems
0.4
0.4
Facility Planning – office space planning to maximize utilization of
existing facilities
0.2
-
Long-term Transmission System Plan Development – complete
technical studies and document writing/communication
0.2
0.2
Technical Resources ($ million)
PAGE 46
2011 Updated Business Plan and Budget Proposal
2011
2011
Adjusted
Plan
Regional Advisors – retain six provincial representatives to
provide feedback and suggestions on electricity industry matters
and share their expertise and local knowledge for inclusion in
AESO outreach programs, consultation processes and
communication initiatives
0.1
0.1
Record/Document Management Project – develop and
implement a strategy on record and document retention and filing
0.1
0.1
Miscellaneous Projects Less Than $0.1 Million
1.4
1.2
Total Technical Resources
8.3
5.9
2011
2011
Adjusted
Plan
Transition of Authoritative Documents – project management
and supplementary resources to implement a standardized process
for authoritative documents (creation of market rules, OPPs,
standards and business practices)
0.8
0.7
Needs Identification Documents – supplementary resources to
write and review documents
0.2
-
Software Application Administration – supplementary resources
for the management of new applications
0.2
0.1
Miscellaneous Projects Less Than $0.1 Million
0.3
1.2
Total Workload Peaks
1.5
2.0
2011
2011
Adjusted
Plan
Co-sourcing arrangements are in place to provide resources with
specialized skill sets to support and maintain specific IT systems in
a cost-effective manner. This co-source strategy is being used on
the following: EMS, EMS historian database (PI), enterprise service
bus (TIBCO), local and wide area network, data storage
technologies, service desk support, server and database
administration and various corporate systems (billing, HR,
accounting).
2.1
2.5
Total Co-source IT Support
2.1
2.5
Technical Resources ($ million)
Workload Peaks – Supplement Staff Resources ($ million)
Co-source IT Support ($ million)
PAGE 47
2011 Updated Business Plan and Budget Proposal
IT Application System Maintenance ($ million)
Resources to provide ongoing maintenance of existing systems to
ensure these systems continue to provide reliable and accurate
functionality (non-capital costs). Cost incurred for this type of work
have occurred in previous years but have been shown to be
increasing with the number and complexity of the AESO
applications which has prompted separate disclosure in the budget.
Validation Phase of Capital Projects ($ million)
AESO Board decision in June 2010 to increase consulting costs by
$2.1 million related to costs incurred for the validation phase of
capital projects (transferred from the general capital budget)
Total Consulting
Differences are due to rounding.
PAGE 48
2011
2011
Adjusted
Plan
1.1
-
2011
2011
Adjusted
Plan
2.1
-
15.1
10.4
2011 Updated Business Plan and Budget Proposal
Appendix H: Capital Projects
The following tables provide information on the AESO’s current capital plan for 2011.
Actual projects to be completed in 2011 will vary, and include the addition of projects yet
to be determined, deferral of projects in this plan or elimination of projects deemed no
longer necessary.
Key Capital Initiatives ($ million)
ƒ
These are the most critical capital projects over the planning period that the AESO
believes must be completed within the identified timeframe.
Key Capital Initiatives
EMS (Energy
Management
System)
Wind
integration
Fair Efficient
Openly
Competitive
(FEOC)
regulation
Description
The next phase of the EMS implementation which includes
improved situational awareness, look-ahead functionality,
load-shed services and a system controller training
environment.
2010 Progress
Phase II implementation update - EMS advanced application
capabilities implemented into real-time operations,
application enhancements, calculation engine validation
activities and an improved testing environment.
2011 Plan
Phase III implementation - Improve efficiency in support and
the use of the system as well as any needed software
versioning updates.
Description
Develop and deploy tools, market rules and products that
assist with the integration of additional wind power
facilities to the AIES.
2010 Progress
The development of tools and rules to support system
controller use of wind forecasting and establish wind power
management requirements and protocols.
2011 Plan
Continued development and implementation of system
controller wind forecasting and wind power management
tools along with the development of new market products to
support wind integration.
Description
Develop and deploy tools to assist with the implementation
of protocols to ensure participants act in accordance with
FEOC mandate - Section 6.
2010 Progress
Completion of warranty work for merit order – offer control
reporting and self registration capabilities.
2011 Plan
System changes supporting the next stage of the FEOC
regulation requirement implementation.
PAGE 49
2011 Updated Business Plan and Budget Proposal
Key Capital Initiatives
Congestion
management
Intertie
framework
Dispatch tool upgrade/enhan
cement
Transmission
and market
modelling
Information
management
platform
Description
Develop and deploy automation tools that facilitate
management of transmission constraints in specific AIES
operating areas.
2010 Progress
No capital invested; awaiting Commission decision on rules.
2011 Plan
System modifications in support of the revised rules.
Description
Develop and implement a framework and tools that support
increased transfer capacity with neighbouring jurisdictions.
This includes but is not limited to restoring existing intertie
capacity, support for merchant transmission
additions and dynamic scheduling solutions.
2010 Progress
System modification/developments supporting the
implementation of a LSSi product and recommendations for
further intertie restoration as well as additional restoration
initiatives.
2011 Plan
Implementation of the LSSi product. System and
operational modifications/developments required to support
MATL integration. Participation in WECC initiative to
implement dynamic scheduling.
Description
Dispatch tool stabilization and enhancements supporting
energy market changes. Ensure dispatch down service and
dispatch variance notification.
2010 Progress
Upgrade completed in June with warranty work continuing
through to year end.
2011 Plan
None. Ongoing enhancement work to be included in the
System Enhancement program.
Description
Implement an Alberta industry standard planning model of
the AIES.
2010 Progress
No capital invested. Initial business case estimates were not
cost justified.
2011 Plan
None. Revisit opportunity in a future budgeting period.
Description
Develop and implement a data analysis and reporting
platform supporting stakeholder (authorized) access and
reporting requirements.
2010 Progress
The addition of two production system data provisioning
interfaces to the data warehouse.
2011 Plan
Continued production system data provisioning interfaces.
Procurement of a third party Export Transform Load (ETL)
product.
PAGE 50
2011 Updated Business Plan and Budget Proposal
Key Capital Initiatives
2010 General
Tariff
Application
(GTA) 2010
Alberta
Reliability
Standards
(ARS)
System
coordination
centre (SCC)
Expansion
Description
Develop and implement changes to the transmission billing
system that support the 2010 GTA rate and calculation
structure.
2010 Progress
System development and modifications required to support
the 2010 GTA.
2011 Plan
Implementation of the 2010 GTA system changes.
Description
Implement compliance management and reporting tools that
support business practices and processes and ensure
internal and external adherence to ARS.
2010 Progress
Capital investment not planned.
2011 Plan
Deployment of compliance management tools as required.
Description
Implement SCC expansions to accommodate the increase
in staffing requirements.
2010 Progress
No capital invested. Review of justification requirements
identified the opportunity to delay the expansion by leasing
space at an alternate location.
2011 Plan
None. Revisit opportunity in a future budget period.
PAGE 51
2011 Updated Business Plan and Budget Proposal
Where applicable, references have been provided to the related strategic objective
provided in the 2010 – 2011 Business Plan and Budget Proposal document that was
distributed as part of the Budget Review Process in September 20093 (and subsequently
approved by the AESO Board).
Current
2010
Estimated
Capital
Spending
Approved
2010
Capital
10
Projects
Adjusted
2011
Capital
Plan
Adjusted
2010-2011
Capital
Plan Totals
(a)
(b)
(a + b)
(from
2009 BRP)
EMS (strategic objective 5)
1.4
0.7
2.8
3.5
7.0
Wind integration (strategic
objective 5)
2.3
3.2
2.9
6.1
6.2
0.0
0.5
2.7
3.2
6.0
-
0.5
1.9
2.4
2.3
1.5
0.5
1.4
1.8
3.5
3.4
2.7
-
2.7
1.7
-
-
-
-
1.2
Information management platform
(strategic objective 5)
0.9
1.4
1.4
2.7
2.4
2010 General Tariff Application
(GTA) 2010
0.1
0.1
0.1
0.1
0.4
-
-
0.2
0.2
0.6
-
-
-
-
3.3
9.7
9.6
13.2
22.8
34.6
Key Capital Initiatives
(strategic objective reference)
7
Fair Efficient Openly Competitive
(FEOC) regulation
2010-2011
Capital Plan
Totals
(strategic objective 1)
Congestion management
(strategic objective 1)
Intertie framework
(strategic objective 1)
Dispatch tool upgrade/enhancement
(strategic objective 5)
Transmission and market
modelling
(strategic objective 2)
Alberta Reliability Standards
SCC expansion
(strategic objective 4)
Key Capital Initiatives
Differences are due to rounding.
10
This column represents the amount apportioned to the program by management through the ongoing
Portfolio Management Process.
PAGE 52
2011 Updated Business Plan and Budget Proposal
Other Capital Initiatives ($ million)
ƒ
These are necessary projects that have more flexibility in planning or delivery so
timing is not as critical or they are lower priority than the key capital initiatives.
Other Capital Initiatives
Description
Adjusted
2010-2011
Capital Plan
Totals
2010-2011
Capital Plan
Totals
(from
2009 BRP)
Load settlement program
Implement a settlement verification model and
integrate with other AESO systems.
0.5
1.9
Interconnection project
support and reporting
(strategic objective 3)
Identify and implement a project management and
reporting tool to manage the queue of system
interconnection projects the AESO oversees.
0.5
1.8
IT test & production
environment
Procure and implement a testing environment that
facilitates application cloning (set up and removal) and
simulates the AESO’s production environments (preproduction testing).
0.0
1.2
Identify and implement a common user
(internal/external) identification authorization process
for all IT systems/services.
0.0
1.2
Replace fragile point-to-point integrations between
legacy systems with publish and subscribe data links
using an enterprise service bus.
0.4
1.1
Retire and replace the existing enterprise content
management and workflow product.
0.3
1.0
Define and identify areas for AESO website
improvement. Based on findings, modify internal and
external websites to enhance stakeholder navigation
and functionality.
0.6
0.7
IT security program
Implement security improvements to IT systems to
reduce security risks to critical IT services and
infrastructure.
0.8
0.7
SCC voice and order-wire
enhancements
Install new hardware and software to support new
operator order-wire functionality at the SCC.
0.6
0.5
Price cap and floor
(strategic objective 1)
Modify AESO marketing systems that remove existing
price cap/floor limits.
0.0
0.4
Loss factor determination
Modify system HVDC logic into the forecasting
algorithms.
0.3
0.3
(strategic objective 5)
Identify access
management
(strategic objective 5)
IT ESB integrations
(strategic objective 5)
Enterprise content
management
(strategic objective 1)
AESO website
(strategic objective 6)
PAGE 53
2011 Updated Business Plan and Budget Proposal
Other Capital Initiatives
Description
Adjusted
2010-2011
Capital Plan
Totals
2010-2011
Capital Plan
Totals
(from
2009 BRP)
0.0
0.3
(strategic objective 1)
Design, develop and implement AESO systems that
allow for ancillary services market changes to
accommodate harmonization and convergence with the
energy market.
Service Management and
Monitoring
Software tools to manage and monitor IT services
(incidents, changes, configurations).
0.6
0.0
System Enhancement
Program
Ongoing minor enhancements to production
applications.
6.2
0.0
Miscellaneous
Other projects not exceeding $0.25 million.
2.8
1.9
13.6
13.0
Operating reserve market
redesign
Other Capital Initiatives
PAGE 54
2011 Updated Business Plan and Budget Proposal
Life Cycle Initiatives
ƒ
($ million)
These are typically replacement of end-of-life hardware and recurring software
upgrades.
Life Cycle
Initiatives
Description
Adjusted
2010-2011
Capital Plan
Totals
2010-2011
Capital Plan
Totals
(from
2009 BRP)
Oracle database
upgrade
Upgrade the AESO’s database environments (development,
test and production to a current version).
2.8
3.1
Server upgrades
Retire and replace corporate server hardware/software
based on pre-determined corporate retirement plan.
1.1
2.0
Network upgrades
Upgrade AESO voice and data networks to ensure vendor
support, meet reliability requirements and address
increased capacity needs. This includes data switches,
telephone system, remote access capabilities, and
redundancy of SCC critical network services.
3.5
1.3
Storage upgrade
Implement a new storage infrastructure designed to address
existing end-of-life cycle considerations and support the
high-performance storage requirements of online
stakeholder systems (e.g., Energy Trading System).
1.8
1.2
Information archiving
upgrade
Upgrade backup and restore platform, as the AESO’s
current archiving platform cannot keep pace with the
explosive data growth.
0.7
1.0
Personal system
refresh
Ongoing investment in desktop systems and mobile devices
to replace aging software and equipment and accommodate
resource growth.
1.6
1.0
Desktop Microsoft
upgrade
Upgrade the AESO’s computing workstations to an
appropriate version of Windows and Office (i.e., XP and
Office 2003).
1.5
0.7
Application server
upgrade
Migrate AESO applications still running dated (end-of-life)
application server technology to the new application server
environment.
0.3
0.5
13.1
10.8
Life Cycle
Initiatives
PAGE 55
2011 Updated Business Plan and Budget Proposal
Appendix I: Allocation of Costs
Management reviews allocation percentages twice a year. They are first reviewed when
the annual budget is prepared and again at year-end when the allocations are finalized
based upon actual activities and costs. This methodology has not changed from that
used in prior years, although the allocation percentages change to reflect the
business/operational activities each year.
The following table has been updated to reflect the adjusted 2011 allocations.
Transmission
(%)
AESO Department
Energy
Market (%)
Load
Settlement (%)
DIRECT OPERATING
Transmission North
Transmission South
Transmission Support
Operations Systems
Grid and Market Operations
Operational Effectiveness
Market Design
Market Operations
Forecasting
Commercial
Regulatory
Regulatory Transmission Support
Compliance
100
100
95
67
67
67
20
35
50
100
33
100
35
5
33
33
33
80
65
50
67
30
35
SHARED SERVICES
*
Corporate Services
Information Technology**
Office Lease
Based on Direct Operating Group Costs (%)
63
31
6
Based on AESO Staff Count
CAPITAL
Assigned on a Project Basis
*
Includes departments such as: Accounting, Settlement & Risk, Human Resources,
Corporate Communications, etc.
**
Based on 2009 actual allocations.
PAGE 56
2011 Updated Business Plan and Budget Proposal
Section 5 – Stakeholder Comments
Throughout the current year Budget Review Process (BRP), we held several meetings
with stakeholders to discuss our business plan and budget materials and provided
stakeholders with an opportunity to provide comments on this information.
The following table lists the stakeholders that participated in the current year BRP.
Stakeholder Participants in the Budget Review
Process
Alberta Direct Connects
Attendance
City of Calgary
Attendance
TransCanada Energy
Attendance
Industrial Power Consumers
Association of Alberta (IPCAA)
Office of the Utilities Consumer
Advocate (UCA)
2010 Stakeholder Meetings
Aug 30
Oct 7
√
Oct 14
√
√
√
√
√
√
Attendance
√
√
Attendance
√
√
Page 1
√
2011 Updated Business Plan and Budget Proposal
The following table identifies the key BRP dates in 2010 and the associated deliverables.
Key BRP
Dates in 2010
Purpose
July 22
Notice to Stakeholders – A notice was distributed to stakeholders
regarding the initiation of the 2010 BRP (i.e., stakeholder consultation
process), an overview of the process steps, terms of reference, and
proposed process schedule.
August 30
First technical meeting – A stakeholder meeting to discuss forecasted
transmission line losses costs and ancillary service costs for 2011.
October 7
Second technical meeting – A stakeholder meeting to discuss the
proposed business initiatives for 2011 and to provide a 2010 financial
update.
October 14
Third technical meeting – A stakeholder meeting to review the adjusted
2011 own costs budget (general & administrative, interest,
amortization, capital and other industry costs).
October 15
Distribution of the draft 2011 Updated Business Plan and Budget
Proposal to stakeholders.
October 29
Distribution of the 2011 Updated Business Plan and Budget Proposal
to AESO Board and stakeholders.
November 9
Stakeholder and AESO Board meetings (as required).
Following stakeholder meetings and/or the posting of BRP information on the AESO
website, we asked stakeholders for their questions and comments. This occurred on four
occasions. There were no formal written questions or comments received from
stakeholders during the 2010 BRP though we responded to various questions posed from
stakeholders during these meetings.
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