Setting Payment Amounts for Output of OPG’s Prescribed Assets: The Regulated Contract for Differences Concept IESO Presentation to OEB September 15, 2006

2 Overview Key Elements of Proposal Determining Output Quantities/Prices Additional investments by OPG Variance and Deferral accounts Type/detail of filing information Issues for first proceeding

3 Key Elements Regulated Contract For Difference (CfD) –A regulatory construct whereby, ratepayers are provided a guaranteed price for a prescribed amount of their consumption and OPG is assured of receiving this price if it produces the output. OPG manages the risk of not producing the prescribed output and is rewarded (a payment at real-time prices) for producing more. Provides an incentive mechanism for the efficient use of the assets –The role of regulatory hearing is to determine the prescribed price and prescribed quantity to balance public policy goals IESO suggests that Regulated CfD achieves stated objectives with lowest regulatory burden relative to other approaches

4 Key Elements Proposal is presented at a conceptual level Consistent with OPG’s agreement with its shareholder: further incents operation of “generating assets as efficiently and cost- effectively as possible” If concept deemed to have merit, details to be fleshed out through regulatory process

5 Determining Output Quantities/Prices Prescribed quantities set according to Board’s weighting of policy objectives: –Higher percentage – more ratepayer price stability, greater degree of mitigation of potential market power –However, higher percentage implies greater financial risk to OPG in event of unplanned outages Suggestion for Nuclear –Percentage based on combined capacities –Percentage of capacity chosen could reflect historic availability factors –Percentage factor and Force Majeure would address financial risk to OPG Suggestion for Hydro –Set equal to the hourly minimum “run of river” level for combined facilities –Based on historic water inflow Prescribed Prices –Consistent with current regulatory arrangement but adjusted by input cost inflation factor –If costs have materially changed, Board review to reset prices

6 Additional investments by OPG Additional investment cost to increase the output of, refurbish or add operating capacity of facilities could be recovered through adjustment in prescribed price –investment cost apportioned over projected output of the facilities Revenue requirement for the additional investments determined through OEB hearing (perhaps a cost-of-service review) OPG to recover cost only if meet requirement of section 6(2) 3 (i) and (ii) of current regulation

7 Variance and Deferral Accounts Under CfD approach, if and as required, OPG may make application to adjust prescribed prices to address Variance and Deferral accounts Initial submission envisioned that many of the costs described in Section 5. (1) would be addressed through Force Majeure

8 Type/detail of filing information Input cost inflation factors Hydroelectric “run-of-river” water flow levels and output levels Historic outage rates and availability factors Additional information, if and as necessary, to support limited COS to establish appropriate prescribed prices

9 Issues for first proceeding Determination of historic outage rates and availability factors Determination of Prescribed quantities based on policy goals Determination of input cost inflation factors Defining Force Majeure Regulatory time-frame