An Overview of:Generation Connections: Transmission Connection Cost Responsibility ReviewJuly 22 2008

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Today’s Q and A Session

• Intention is to provide an opportunity for clarifying questions and discussion to assist participants in making written submissions

• Begin with overview presentation• Written comments due August 11

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Current Connection Cost Responsibility Policy

• With some exceptions, new or modified connections to the transmission grid are the cost responsibility of the customer connecting.

• Transmitters are not permitted to construct generator connections to the grid.

• This framework is based on a paradigm of large, single proponent generators located close to the grid. Framework promotes efficiency as generators assess costs and benefits of connection.

• It has also succeeded in connecting renewables at some distance from grid. But these are typically single proponent cases with connections that are shorter and less remote than the resources identified in the IPSP’s “clusters”

• The framework may not work so well for small, multiple proponents located in remote clusters.

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Why might remote clusters be difficult to connect?

• Renewable proponents in a remote cluster responsible for their own connection must both win an OPA contract for supply, and develop and construct the enabler line. The transmission part will take much more time than the generation part.

• Do they: begin transmission development work before winning an OPA contract? No guarantee of recovery of development investments. Do they: win OPA contract and then begin transmission development? Under current procurement policy this would be commercially infeasible.

• In other words the problems are:– Timing: The “enabler” line will take a lot longer to develop than the

generation (lengthy approvals).– Coordination: Transmitters are not allowed to construct or own this line.

Several generators would need to work together to get approvals for the line.

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Enabler chicken or wind farm eggs?

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The Scope of the Staff Discussion Paper

• Letters of January 4th and 28th allowed for broad scope.

• We have narrowed this down to the problem discussed above based on research done since January, participant views expressed at the February 14th meeting, and the absence of expressions of concern about generation connections more broadly.

• We also are focussing on generation connections only – load side to come later.

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Lessons from Other Jurisdictions

• Perhaps the key lesson from other jurisdictions is that addressing the design of the process is at least as important as the question of “who pays”.

• In both Texas and California transmission providers are actively involved in enabler development.

• In Texas the regulator runs a contest to determine who will build enabler transmission. Enabler costs are ultimately recovered in transmission rates.

• In California the system operator plays this role and transmission costs are split between connecting generators and transmission rate payers.

• In Ontario: most important deficiency is the central coordination of transmission development with generation – and very limited role for transmitters.

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OPTIONS: Underlying Objectives

• How do the options we studied promote the following objectives:

• Economic Efficiency (from section 1(1) of the Ontario Energy Board Act). In this context can be understood to mean achieving the connection of renewables in a cost effective and timely manner.

• Regulatory Predictability and Administrative Simplicity: Clear basis for regulatory decisions, the number of determinations that must be made, the level of proponent effort required for participation in proceedings.

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OPTIONS: Overview

• Options are differentiated based on:• Lead responsibility: who is responsible

for developing and constructing enabler facilities?

• Cost Responsibility: who is responsible for paying the costs of the enabler facilities?

• How will the process work to address timing and coordination issues?

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OPTIONS: Regulatory Instruments involved

• How can the Board address the timing and coordination problems?

• Board has instruments it can use:– Transmission System Code: assigns lead and cost

responsibility.– System Plan approval: we approve system plans that include

identified enabler lines.– Licences: We can direct transmitters to develop transmission in

approved system plans to ensure transmission development work proceeds in a timely way.

– Leave to Construct: We approve the actual line and can review need for the line and its appropriate sizing.

– Rates: We can allow recovery of prudently incurred costs in transmission rates.

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OPTIONS: The Menu

• Status quo – Generator is responsible for both.• Pooling – Transmitter responsible for

constructing and owning the line, costs recovered from transmission customers.

• Hybrid – Transmitter constructs and owns the lines, generators connecting pay pro rata share of costs, transmission customers pay the rest.

• Shared – Transmitter constructs and owns the lines, generators connecting initially pay the entire enabler cost. Later connecting generators also pay to connect, money refunded to early connectors.

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A workable process – for Pooling, Hybrid, and Shared options

• Enablers with two or more proponents would have access to one of the options. Otherwise status quo prevails.

• Enablers will be identified as such in approved system plan.• After Board approves system plan, it will launch a process to identify

who will develop and construct the line.• Successful transmitter does the development (and is assured

recovery of prudently incurred costs).• OPA procures generation once the development phase is nearly

complete but before Board gives Leave to Construct approval for the enabler.

• Enabler line is constructed in parallel with generation.• Generator remains responsible for its connection line to the enabler

facilities.

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Next steps

• Released Staff Discussion Paper July 8.• Staff / participant Q&A July 22.• Written comments due August 11.• Develop and publish proposed changes to

Transmission System Code and other regulatory instruments by early September.