Compliance Monitoring and Enforcement Audit Program Background Information

Introduction This presentation is intended as an introduction to the audit process for employees of entities being audited by MACD. Please refer to the manual for more detail 2

Why is MACD Performing Compliance Audits? Electricity is critical to our society The industry has established standards to ensure reliable operation of the power system Under the Electricity Act (Section 32.1), it is the IESOs role to monitor and enforce compliance with these standards IESO delegates these responsibilities to MACD 3

Reliability Standards Reliability Standards are created to improve the reliable operation of the bulk electricity system Minimum standards for operation in key areas Market Participants must continuously follow all applicable Reliability Standards in effect in Ontario Depending on your company role, different standards may apply e.g. Generator Operator Standards compared to Transmission Operator standards 4

Reliability Standards NERC – North American Electric Reliability Corporation establishes reliability standards. NPCC –North East Power Coordinating Council has delegated authority from NERC. Ontario is part of the NPCC, IESO participates in the development and approval of standard. Stakeholder involvement through the Reliability Standards Sub Committee of the IESO The Ontario Energy Board has the right to reject NERC reliability standards 5

Introduction to Compliance Audits Audits must provide reasonable assurance that evidence is sufficient and appropriate to support the auditors findings and conclusions. –Sufficient quantity of evidence, spans the time period being audited –Evidence must be of sufficient quality – authenticated –Typically involves multiple types of evidence related to the same thing e.g. Approved internal documentation Physical examination/inspection Analytical procedures with adequate data Observations and inquiries 6

MACD Audit Program A ‘risk based’ audit program, not a pre set audit cycle MACD considers industry trends, Ontario specific inputs when developing the program MACD makes an assessment of the risk to reliability for various standards and participants The Audit Program begins with an implementation plan issued in the fall 7

MACD Implementation Plan Issued in the fall – after NERC issues their plan Provides a list of reliability standards which MACD will focus on during the upcoming year The implementation plan may be revised during the year depending on industry developments Individual audits will include standards from the implementation plan but may also include additional standards. Individual audits are initiated with an Audit Notification, are not listed in the Implementation Plan 8

Introduction to Compliance Audits Part Two of this presentation will deal with the audit process once an Audit Notification has been sent to a Market Participant. –Audit Notification –Pre Audit Meetings –Data Submission –The Audit –Exit Meeting –Audit Report 9

Compliance Monitoring and Enforcement Audit Program - Background Information End Of Presentation 10