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June 4, 2012. Current and Future Components of Global Adjustment Centre for Urban Energy Ryerson University – Discussion Panel Series 2012 Amir Shalaby. Outline. Generation and conservation contracts drive global adjustment What is included in Global Adjustment Mechanism (GAM)? - PowerPoint PPT Presentation
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June 4, 2012
Current and Future Components of Global Adjustment
Centre for Urban Energy Ryerson University – Discussion Panel Series 2012Amir Shalaby
2
Outline
• Generation and conservation contracts drive global adjustment
• What is included in Global Adjustment Mechanism (GAM)?
• How is GAM collected from customers
• Outlook for the cost of generation and conservation and GAM
• Some ideas for consideration
3
Conservation and generation contracts drive Global Adjustment
i. Electricity Generation (i.e. electricity production)ii. Electricity Conservationiii. Transmission Delivery Systemiv. Distribution Delivery Systemv. Wholesale Market Servicesvi. Debt Retirement Charges
Total Cost of Electricity Services
Debt Retirement
Charge
Transmission Delivery
Costs
Wholesale Market
Services
Distribution Delivery
Costs
Electricity Generation
CostsElectricity
Conservation Costs
Generation, $9.4 , 60%
Conservation , $0.4 , 3%
Transmission, $1.3 , 9%
Distribution, $3.1 , 20%
Wholesale Market Services,
$0.7 , 4%
Debt Retirement,
$0.7 , 4% 2010 Actuals
GAM + market revenues pay the contracted or regulated amounts
4
OPA Generation Contracts (i.e., Bruce, FIT, RES, CES)
OEFC Generation Contracts (i.e., NUGs and OPG Coal Contingency Contract)
OPG Regulated Rates(i.e., OPG Nuclear and base load Hydro)
Market Generation(i.e., not contracted and non-regulated)
Conservation Costs- OPA
Conservation- OEB approved
LDC conservation
Market Revenues @HOEP
GAM
Cost Recovery Mechanisms:
• Market revenues are earned in the IESO-administered markets (e.g. spot market/Hourly Ontario Energy Price)
• The Global Adjustment Mechanism (“GAM”) is used to recover costs not recovered through Market Revenues
GAM tops up market revenues for contracted or regulated generation and conservation
5
OPA Generation Contracts (i.e., Bruce, FIT, RES, CES)
OEFC Generation Contracts (i.e., NUGs and OPG Coal Contingency Contract)
OPG Regulated Rates(i.e., OPG Nuclear and base load Hydro)
Market Generation(i.e., not contracted and non-regulated)
Conservation Costs- OPA
Conservation - OEB approved
LDC conservation
Market Revenues @HOEP GAM
• The Global Adjustment Mechanism (“GAM”) is the settlement difference (+ or -) of the OPA and OEFC contracts and OPG regulated rates + conservation costs.
• Market generation is completely paid for by market revenues
Market revenues will cover cost of market generation; therefore this isn’t part of GAM
6
About 84% of total supply is supported by GAM: here is the List
• OPA Contracts (generation is base load, intermediate and peaking supply)– Bruce Power A and B - RES contracts
– HESA (Hydro Energy Supply Agreement) - HCI (Hydro Contract Incentive)
– CES and CHP contracts • (deemed dispatch and natural gas related)
– Standard Offer - Lennox• RESOP• CESOP• FIT/Micro-FIT
• OEFC contracts – NUG contracts– OPG Coal Contingency Support Payments
• OPG Regulated Rates (generation is base load)– Nuclear (Prescribed Assets)
• Pickering and Darlington– OPG Base load Hydro (Prescribed Assets)
• De Cew I, De Cew II, Sir Adam Beck I, Sir Adam Beck II, Sir Adam Beck pumped generating station and R.H. Saunders
Share of Market Revenues is declining over time. Share of Global Adjustment is increasing
• As the Market Price (i.e., HOEP) declines, the share of costs recovered through GAM increases
7
Source: IESO
$78.93
$47.80$50.51 $51.67
$31.61
$37.85
$31.47
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
-$2
$0
$2
$4
$6
$8
$10
$12
2005 2006 2007 2008 2009 2010 2011
$/M
Wh
Billi
ons
GAM for Generation GAM for Conservation Market Revenues Hourly Ontario Electricity Price (HOEP) $/MWh
Components of Monthly GAM: OEFC, OPG and OPA
8
Source: IESO
353
302
451
371
273 282
99
157
314
444
389412
469
394428 440
498
423392
426391
457 451
541512
550
667
-100
0
100
200
300
400
500
600
700
800
$ M
illio
ns
GA-OEFC-NUG/Coal GA-OPG GA-OPA
Components of Monthly GAM by Energy Source
9
Source: Market Surveillance Report
353
302
451
371
273 282
99
157
314
444
389412
469
394428 440
498
423392
426392
457
-100
0
100
200
300
400
500
600
700
800
Mill
ions
Nuclear (Bruce and OPG) Natural Gas and Coal phase out Wind/Solar Conservation and Hydro
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
GAM Costs in 2011 ($ M) Energy Production in 2011 (TWh)
$ Bi
llion
s
Nuclear Natural Gas Wind Solar Bio and Hydro Conservation
0
10
20
30
40
50
60
70TWh
GAM Unit Cost
Bio and Hydro $62/MWhSolar $466/MWhWind $74/MWh
Natural Gas $54/MWh
Nuclear $26/MWh
GAM and production by fuel type for facilities contracted by OPA (2011)
10
Nuclear
Natural Gas
WindSolar
Bio & Hydro
Conservation
Source: OPA
How GAM is collected from customers
• Prior to January 1, 2011 – GAM was a uniform volumetric rate (total monthly cost divided by domestic demand)– Applicable to all customers (no difference in customer Class)
• After January 1, 2011 – GAM cost divided between Class A and Class B customers– Class A (demand greater than 5 MW) pay GAM based on their use during five highest peak
demand hours in “base period”– Class B (=< 5MW) pay the remaining GAM cost on a volumetric rate basis
Schedule of when the GAM High 5 is determined for Class A customers (i.e., Base Period) and Adjustment Period, is when the determined shares are applied to GAM costs.
11
1
Base Period Adjustment Period
May 1, 2010 to October 31, 2010 January 1, 2011 to June 30, 2011May 1, 2010 to April 30, 2011 July 1, 2011 to June 30, 2012May 1, 2011 to April 30, 2012 July 1, 2012 to June 30, 2013May 1, (Year X) to April 30, (Year X+1) July 1, (Year X+1) to June 30, (Year X+2)
Appendix: Cost Recovery
353302
451
371
273 282
99
157
314
444
389412
469
394428 440
498
423392
426391
457 451
541512
550
667
0
100
200
300
400
500
600
700
800
$ M
illio
ns
Class A Total (M$) Class B Total (M$) All Customers GA Costs (M$)
GAM Monthly Cost Share by Customer Class (A or B)
12
• Pre – 2011 all customers shared the GAM costs on a volumetric basis • Post – 2011, Class A cost share of GAM has been about 11% and 10% with about 16% of energy usage.• Class B share of GAM is the remainder not recovered from Class A, which is about 91% to 90% of costs from 84% of
the energy • The cost share will be re-established on July 1, 2012, associated with the May 1, 2011 to April 30, 2012 base period
Source: IESO
Class A Share 11% Class A Share 10%
0
10
20
30
40
50
60
70Ja
n-10
Feb-1
0
Mar-
10
Apr-1
0
May
-10
Jun-1
0
Jul-1
0
Aug-1
0
Sep-1
0
Oct-
10
Nov-1
0
Dec-1
0
Jan-1
1
Feb-1
1
Mar-
11
Apr-1
1
May
-11
Jun-1
1
Jul-1
1
Aug-1
1
Sep-1
1
Oct-
11
Nov-1
1
Dec-1
1
Jan-1
2
Feb-1
2
Mar-
12
$/M
Wh
Class A Avg. GAM ($/MWh) Class B GAM ($/MWh) All Customers($/MWh)
Same GAM Rate for all Customers
Class B GAM Rate
Class A GAM Rate
Average Unit Cost of GAM for Class A is less than Class B customer
13
Post January 1, 2011
• Post Jan 1, 2011, Class A on average pay a lower GAM rate then Class B• Class A pay GAM based on individual’s usage of highest 5 hours; therefore, Class A rate is an
average unit rate not applicable to any one customer.
Source: IESO and Market Surveillance Report
GAM and Market Revenue Share – depends on HOEP• HOEP will result in GAM.
Conversely, HOEP will result in GAM
• HOEP projected trajectory to 2015 is likely to be downward from 2011.
• HOEP is impacted by:– demand levels– fuel costs (i.e., natural gas)– changing supply mix– regional trade (i.e., exports)
• 2015 Outlook is produced for two HOEP scenarios: 1) $15/MWh, and2) $25/MWh
14
Outlook for generation and conservation costs by 2015
15
11.29.6
2.54.1
13.7 13.7
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
HOEP @ $15/MWh HOEP @ $25/MWh
$201
0 Bi
llion
s
GAM ($B) Market Revenue ($B)
Source: OPA
Outlook of GAM Components by Fuel Type
16
Source: OPA
2.54.1
13.7 13.7
$0
$2
$4
$6
$8
$10
$12
$14
$16
HOEP @ $15/MWh HOEP @ $25/MWh
$201
0 Bi
llion
NUCLEAR NATURAL GAS HYDRO WIND BIO SOLAR Conservation and Funds Market Revenue
GAM Costs 2015 ($2010 B) Energy Production in 2015 (TWh)NUCLEAR NATURAL GAS HYDRO WIND SOLAR BIO Conservation and Funds
0 0
20
16
12
8
4
$201
0 B
illion
s
40
80
120
160
200
TWh
Hydro $33/MWh
Natural Gas $164/MWh
Nuclear $46/MWh
Bio $101/MWh
Wind $143/MWhSolar $459/MWh
GAM Unit Cost HOEP @ $15/MWh
2015 Outlook of GAM Component and Production Levels by Fuel Type @ $15/MWh
17
Solar
Wind
Bio
Hydro
Nuclear
Natural Gas
Conservation
Source: OPA
GAM Costs 2015 ($2010 B) Energy Production in 2015 (TWh)
NUCLEAR NATURAL GAS HYDRO WIND SOLAR BIO Conservation and Funds
0 0
20
16
12
8
4
$201
0 B
illion
s
40
80
120
160
200
TWh
Hydro $24/MWh
Natural Gas $155/MWh
Nuclear $36/MWh
Bio $93/MWh
Wind $133/MWh
Solar $450/MWh
GAM Unit Cost HOEP @ $25/MWh
2015 Outlook of GAM Component and Production Levels by Fuel Type @ $25/MWh
18
SolarWind
Bio
Hydro
Nuclear
Natural Gas
Conservation
Source: OPA
2015 Outlook of Average Unit Cost of GAM for Customer Class (A or B)
19
• Outlook for Class A and Class B GAM costs, are based on the historical cost shares of 10% and 90% and volume shares of 17% and 83%, respectively
• Unit GAM rate for Class B is about two times greater then the Class A GAM rate
Source: OPA
$45.18 $38.72
$83.29
$71.37
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
HOEP @ $15/MWh HOEP @ $25/MWh
$201
0/M
Wh
Class A Class B
What is working and what can be improved about GAM?
What is working? What can be improved?• Enables investments to proceed,
which can’t be fully funded by market revenues
• Better forecast scenarios
• Full cost recovery of electricity and conservation cost
• Retailers treatment of GAM
• Communication
• Relevance of real-time price signal
20
Some ideas
• Recognize GAM allocation as rate design exercise: apply rate design principles
• Communicate that price of generation is real time market plus GAM
• Inform/protect retail customers
21
Q & A
22
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