1 Environmental Tracking System Fees Regulatory Affairs Standing Committee September 11, 2003 Market Evolution Program Update.

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Environmental Tracking System Fees

Regulatory Affairs Standing Committee

September 11, 2003

Market Evolution Program Update

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Purpose of this Presentation

• Introduce the Tracking System

• Discuss the proposed Tracking System fees design

• Address the Tracking System’s current status

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Tracking System Background

• Tracking System regulation developed by the MOE

under legislative authority of the Ontario Energy Board

Act, 1998.

• Regulation prescribes high-level functionalities, roles,

and responsibilities.

• The IMO is designated as Administrator.

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Tracking System Principles

• Unbundle property rights associated with electric energy:

(a) electrons tradable in power markets

(b) environmental attributes tradable in certificate markets

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Tracking System Principles

• Certificate:

Electronically-generated and transferable record created

by the Tracking System, representing the electricity

source, types and quantities of emissions, and other

characteristics of 1 MWh of electricity related to the

generation facility that produced it.

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Policy Rationale

• Emissions disclosure for consumer information

• Provides verification for retail claims

• Backstop for Renewable Portfolio Standard compliance

• Facilitates development of renewable energy markets

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Fees

• Proposed Regulation provides that the IMO shall establish a fees schedule for the Tracking System, payable by Generators and Certificate Sellers.

• Tracking System fees are subject to OEB approval.

• The regulation prescribes who pays, not how or on what basis.

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Fees Design Principles

• Proposed design is premised on the principles of:

- Simplicity,

- Recovery of IMO revenue requirement,

- Fairness, and

- Flexibility going forward.

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Fees Design Options• Fees design options considered:

1. Fixed fee on all participants

2. Bundled variable fee on wholesale generator production

3. Bundled variable fee on wholesale and retail generator production

4. Bundled variable fee on wholesale and retail generator production and fixed nominal fee on certificate sellers

5. Unbundled variable fees on production, imports, certificate sellers, etc.

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Fees Design Approach

• Notion of “Day 1” and “Day 2” fees design approach:

- Day 1 = upon Tracking System Deployment.

- Day 2 = at some appropriate future time.

• Informed by the following factors:

- Desirability of a smooth Tracking System start-up;

- Limited Tracking System-related historic data;

- Limited billing relationships with Tracking System participants.

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Fees Design Proposal

PERIOD PAYEE BASIS OF PAYMENT

Wholesale Generators Metered Production ($/MWh)

LDC-Settled Generators Metered Production ($/MWh)

Certificate Sellers Fixed Annual Nominal Fee ($/yr.)

"Day 2 & Beyond" Certificate Sellers Activity Fee (TBD)

"Day 1"

Day 1: (a) Variable fee on metered generation output (fee per-MWh)

(b) Fixed nominal annual fee on Certificate Sellers (fee per-year)

Day 2: Further unbundling as appropriate

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Program Status

• Awaiting passage of Regulation

• Continuing with vendor selection process

• Preparing OEB Rate Order application

• Developing Stakeholder forum

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Summary• The IMO is designated as Tracking System Administrator

• Proposed Tracking System Regulation provides that IMO shall establish a fee schedule for Tracking System costs

• Fees design proposal entails a “Day 1”, “Day 2” approach

• Day 1 fees design consists of a variable fee on metered generation output and a fixed nominal annual fee on Certificate Sellers

• Regulation has not passed yet

• OEB Rate Application submission to follow passage of Regulation

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Questions