Stakeholder Consultation on Potential AESO 2015 Rider I Application

AESO 2015 Rider I Consultation
July 22, 2014
Stakeholder Consultation on
Potential AESO 2015 Rider I Application
John Martin, Director, Tariff Applications
July 22, 2014 — Calgary, Alberta
Topics
• Background and history of Rider I
• AESO Rider I proposal details
• Issues and concerns with Rider I proposal
• Potential modifications to Rider I proposal
• Next steps
Please ask questions during presentation
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Objective
• AESO is considering re-applying to the Commission for
approval of Rider I
• Explore whether Rider I proposal could be modified to
address concerns raised by transmission facility owners such
that the application would not be opposed by any party
• AESO wants to decide:
– whether to re-apply for Rider I, and
– what modifications to include in an application
• AESO is not interested in applying for Rider I if material
objections to Rider I will be raised
Confidentiality: Public
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What is Rider I?
• Rider I is an ISO tariff proposal to allow a market participant
to pay a construction contribution over time rather than as an
up-front cash payment as currently required
– For example, a construction contribution of $5,000,000 could
be converted into a monthly payment that:
• would begin at about $49,000/month in year 1; and
• gradually decline to about $22,000/month in year 20
• Rider I payments would include transmission facility owner
financing costs
• Rider I would also require financial security from the market
participant so that other market participants are unaffected
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
AESO Rider I proposal
• Rider I would be available as an option for both Rate DTS
and Rate STS connection projects
– Would be optional for all credit-worthy market participants
• Market participant would be required to pay contribution while
connection project is under construction
• After commercial operation, contribution could be converted
into amortized payment
• Remaining balance of previous contribution could also be
converted into amortized payment
• Payment would be amortized over investment term
• Rider I would require financial security for remaining balance
of contribution
Confidentiality: Public
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History of Rider I proceedings
• AUC 2009 Generic Cost of Capital Proceeding
• ATCO Electric 2009-2010 General Tariff Application –
Phase I
• AltaLink 2009-2010 TFO Tariffs Application
– In these three applications, Rider I was discussed with respect
to impact on return on equity and on management fee
proposals of AltaLink and ATCO Electric
• AESO 2010 ISO Tariff Application
– First application by AESO for Rider I
– Several concerns raised by interveners
– Commission decided to examine in context of generic cost of
capital proceeding
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
History of Rider I proceedings (cont’d)
• AUC 2011 Generic Cost of Capital Proceeding
– Commission approved Rider I in principle
– Commission directed AESO to refile to address entry and exit
provisions as well as concern about Rider I term
– Commission found utilities must bear risk of stranded assets,
regardless of reason for stranding (including Rider I default)
• Utilities Review and Variance of Decision 2011-474
– Utilities requested Commission review its finding that utilities
must bear risk of stranded assets regardless of reason
– Review and variance denied
– Commission suggested AESO file for approval of Rider I
– Stranded asset risk to be addressed in separate proceeding
Confidentiality: Public
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History of Rider I proceedings (cont’d)
• AESO 2012 Rider I Application
– Application in compliance with directions from 2011 generic
cost of capital proceeding
– AltaLink and ATCO Electric raised issue of credit default risk
that could potentially arise from Rider I
– Rider I denied until stranded asset issue resolved
• AUC 2013 Utility Asset Disposition Proceeding
– Commission found circumstances exist in which assets that are
no longer used or useful may remain in utility rates
– The AESO interprets that these circumstances do not include
stranded assets that would be originally funded through Rider I
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Rider I proposal details
• Rider I would be available when a construction contribution is
required under Rate DTS, Rate PSC, or Rate STS
• Market participant may request Rider I any time after
commercial operation and up to 12 months prior to end of
investment term
• AESO could deny Rider I request
– If concerned about project viability
– If market participant is in default on amounts owing elsewhere
– Due to concerns raised by available financial information
– Due to repeated conversions to and from Rider I
– Due to reasonable expectation of potential harm
– Due to any other reasonable factor
Confidentiality: Public
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Rider I proposal details (cont’d)
• AESO could rescind a prior acceptance of Rider I
• Rider I cannot be used for generating unit owner’s
contributions
– Only for construction contributions
• AESO determines monthly payment once per year
– On anniversary of commercial operation date
• Rider I payments included on monthly bills issued by AESO
• Market participant must provide financial security for
remaining contribution balance
– Security not required for distribution system owners
– In accordance with section 103.3 of ISO rules, Financial
Security Requirements
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Rider I proposal details (cont’d)
• Market participant may terminate Rider I on 3 months notice,
after at least 12 months on Rider I, and upon payment of
remaining balance of contribution
• AESO could deny early termination request
– On failure to pay remaining balance of contribution
– Due to repeated conversions to and from Rider I
– Due to reasonable expectation of potential harm
• Contribution will be returned to market participant within
2 months of first billing for Rider I
• Rider I will be adjusted if construction contribution is adjusted
Confidentiality: Public
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Outstanding issues
• During the AESO’s 2012 Rider I application proceeding,
AltaLink and ATCO Electric raised concerns about Rider I
credit default risk
• AltaLink and ATCO Electric argued that stranded cost risk
would exist with Rider I and could be material (characterized
as a high impact, low probability risk)
• AltaLink and ATCO Electric requested the Commission
protect them from potential harm by establishing deferral
accounts to deal with Rider I credit default
• The Commission found that other customers should not bear
the risk of credit default by a Rider I customer
• The Commission accordingly denied the AESO’s Rider I
proposal
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Specific concerns identified during prior
Rider I application proceeding
• Use of unsecured credit to reduce amount of financial
security to be provided by market participant
• Differences between security and credit practices of AESO
and of transmission facility owners
• Opportunity for transmission facility owner to manage
security requirements for Rider I
• Opportunity for transmission facility owner to provide direct
input on decisions to accept or deny requests for Rider I
• Process to monitor credit default risk over time
• No other concerns were identified during the AESO’s 2012
Rider I application proceeding
• Do any other outstanding issues exist?
Confidentiality: Public
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Can AltaLink and ATCO Electric concerns
be addressed?
• Concern with unsecured credit
– Could exclude use of unsecured credit for Rider I
– Would affect very few market participants
• Concern with different security and credit practices
– Could utilize practices of transmission facility owners
– Might result in some differences between transmission facility
owners
• Concern with AESO managing security requirements
– Could allow transmission facility owner to manage security
requirements
– Might result in some differences between transmission facility
owners
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Can AltaLink and ATCO Electric concerns
be addressed? (cont’d)
• Concern with lack of transmission facility owner input on
Rider I decisions
– Could allow transmission facility owner to accept or deny
Rider I requests
– Might result in some differences between transmission facility
owners
• Concern with monitoring credit default risk
– Could allow transmission facility owner to monitor credit default
risk
– Might result in some differences between transmission facility
owners
Confidentiality: Public
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Can the credit default risk issue be
addressed within Rider I?
• The AESO interprets Decision 2013-417 on the
Commission’s Utility Asset Disposition Proceeding to confirm
that transmission facility owners would remain liable for
Rider I credit default risk
– Do other parties share the AESO’s interpretation?
• Would allowing transmission facility owners to accept and
deny Rider I requests and to manage financial security
requirements sufficiently mitigate risk?
– Transmission facility owner would remain liable for Rider I
credit default risk but would be able to manage security
requirements to mitigate risk
– Potential for differences between transmission facility owners
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Can the credit default risk issue be
addressed within Rider I? (cont’d)
• Rider I implementation could be reviewed in future ISO tariff
proceeding
– Implementation could be revised if concerns arise
• Rider I is an option for market participants
– Market participant would not be disadvantaged compared to
current tariff provisions requiring construction contribution to be
paid prior to energization
Confidentiality: Public
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Next steps
• Is further consultation required?
– If so, in what form?
• Should the AESO re-apply for approval of Rider I?
• If AESO files a Rider I application along the lines discussed
today, does any party anticipate objecting to its approval?
• Should AESO provide opportunity for interested parties to
review final form of Rider I prior to filing?
– If so, through what process?
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Discussion and questions
Confidentiality: Public
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For more information
• John Martin
Director, Tariff Applications
403-539-2465 or [email protected]
• Raj Sharma
Senior Regulatory Analyst
403-539-2632 or [email protected]
• All consultation documents can be found on AESO website at
www.aeso.ca by following the path Tariff ► Current
Consultations ► 2015 Rider I
Confidentiality: Public
Stakeholder Meeting — Calgary, Alberta
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AESO 2015 Rider I Consultation
July 22, 2014
Thank you
Stakeholder Meeting — Calgary, Alberta
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