Technical MeetingAESO’s 2015 Forecasts, Own Costs Budget

Stakeholder Meeting

October 6 and 8, 2014

2

Purpose

• Purpose of this presentation is to:

– Provide stakeholders with an overview of:

• AESO’s 2015 Pool Price, Ancillary Services and Transmission Line Losses Costs Forecasts

• AESO’s 2015 draft Own Costs budget

• Update on the Market Systems Replacement project

• Update on the Energy Management System project

• Obtain preliminary feedback

– Provide stakeholders with a BRP status update and discuss next steps

3

2015 BRP - StepsStatus Update

Step Activity

1.0 Invitation to Stakeholders

Initiate annual consultation process

2.0 AESO Business Initiatives

Present preliminary list of business initiatives and solicit stakeholder feedback

3.0 Develop Own, Ancillary Service and Line Loss Forecasts

Develop Own Costs (G&A/Capital/Other Industry) budget, Ancillary Services and Line Loss Cost forecasts

4.0 Technical Review Meeting

Present and solicit feedback on Own Costs budget, Ancillary Services and Transmission Line Loss Cost forecasts

5.0 AESO Board Decision

Draft AESO Board Decision DocumentAESO Board meets with stakeholders to discuss issues AESO Board issues final decision

6.0 Dispute Process Available for instances where stakeholder disagrees with the AESO Board Decision

4

2015 BRP - Steps Calendar (revised)

3.0 Develop AESO Own Costs,Ancillary Service and Line Loss

Forecasts (internal)June - September

4.0 Technical ReviewMeetings with Stakeholders

September 22 - Business Initiatives October 6 (Calgary) and October 8 (Edmonton) - Ancillary Service, Transmission Line Losses Costs

Forecast and Own Costs

AESO BoardDecision

5.0 AESO Board DecisionNovember 14 – Stakeholder presentations

1.0 Notice to Stakeholders2.0 Updated Business Initiatives

5.0 AESO Board Decision(continued) - finalize

2015 Pool Price Forecast

October 2014

6

The information contained in this document is published in accordance with the AESO’s legislative obligations and is for information purposes only. As such, the AESO makes no warranties or representations as to the accuracy, completeness or fitness for any particular purpose with respect to the information contained herein, whether express or implied. While the AESO has made every attempt to ensure the information contained herein represents a reasonable forecast, the AESO is not responsible for any errors or omissions. Consequently, any reliance placed on the information contained herein is at the reader’s sole risk.

7

Purpose of AESO Price Forecast

• Hourly Price Forecast is Required for the Budget Review Process

– Forecast feeds cost calculations for Ancillary Services and Transmission Losses

• Third year of the AESO providing a Forecast

– Price Forecasts from EDC were used prior to the 2013 BRP

8

Forecast Methodology

• Created Using the AURORAxmp Power Market Model

– Model reflects the Alberta Market Fundamentals

• Random Variables are Used to Generate Price Volatility

– Forced Outages – random times and duration

– Demand – accounts for weather impact

– Gas Prices – lognormal distribution of monthly gas prices

– potential long-term forced outages, congestion, unanticipated load growth, wind output, and high/low hydro years are currently not modeled using random variables

• Price Simulation

– Ran 1001 separate price simulations

– Price distributions reflect volatility seen in the Alberta Market

9

Load Forecast

10

Supply Additions

11

2015 Simulation Results

Results from 1001 Price Simulations

Results from the P95 Simulation and Comparables

Mean Min P5 P25 Median P75 P95 MaxOn-Peak $43.31 $36.07 $39.39 $41.36 $43.12 $44.89 $47.85 $56.72 Off-Peak $26.68 $24.06 $25.28 $26.17 $26.67 $27.21 $28.76 $29.90 Flat $37.77 $32.20 $34.66 $36.29 $37.64 $38.97 $41.49 $47.78

Pool Price ($/MWh)

AESO

On-Peak $47.85 $62.37 Off-Peak $28.76 $19.90 Flat $41.49 $48.21

Period Forward Market(as of Sep. 15, 2014)

12

Actual/Forecast Price Comparison

• 2015 forecast is based on the P95 iteration

13

2014 Daily Price Duration Curve

2015 Ancillary Services Cost Forecast

October 2014

15

Cost of Ancillary ServicesAnnual ComparisonAll costs in $-millions

2013Forecast

2013Actual

2014Forecast

2014Projected

2015Forecast

Operating Reserve *

$181.2 $362.1 $193.7 $219.7 $130.5

TMR * $2.0 $2.6 - - -

Blackstart $5.0 $1.0 $2.8 $1.0 $5.0

LSS/LSSi $68.7 $21.2 $25.4 $22.5 $25.0

Other $2.3 $2.5 $2.5 $2.7 $2.5

Total $259.2 $389.4 $224.5 $245.9 $163.0

2013 Forecast

2013Actual

2014Forecast

2014Projected

2015Forecast

Pool Price $60.47 $80.19 $48.48 $59.39 $41.49

Gas Price $3.03 $3.01 $3.28 $4.37 $3.99

* Conscripted TMR and Operating Reserves not included in the table above

16

Forecast Methodology Operating Reserves

• Annual cost of OR is estimated by the sum of forecasted hourly OR volumes (governed by WECC requirements) multiplied by the forecasted hourly price of OR

• Forecasted cost of OR is evaluated once for each of the 1001 pool price simulations

All costs in $-millions

2013 Forecast

2014Forecast

2015Forecast

P95 $181.2 $193.7 $130.5

Max $271.1 $366.4 $261.5

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Forecast Methodology Contracted TMR and Other Ancillary Services

• Annual TMR cost forecast based on historical contract costs

• Annual LSSi cost forecast based on current monthly averages and expected costs for 2015

• Annual blackstart cost forecast based on contract terms governing compensation and expected new contracts in 2015

All costs in $-millions 2015 Forecast

Transmission Must Run -

Blackstart $5.0

LSS/LSSi $25.0

Other $2.5

2015 Transmission Line LossesCost Forecast

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19

Cost of Transmission Line LossesAnnual Comparison

2011 Actual

2012Actual

2013 Actual

2014 Projected

2015 Forecast

Cost($-millions)

$183.3 $150.5 $181.7 $145.1 $105.3

Volume (GWh)

2,384 2,255 2,321 2,361 2,472

2011 Actual

2012Actual

2013 Actual

2014 Projected

2015 Forecast

Pool Price($-millions)

$76.22 $64.32 $80.19 $59.39 $41.49

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Forecast MethodologyLine Losses

• Annual cost of transmission line losses is estimated by the sum of forecasted hourly volumes multiplied by the forecasted pool price

• Forecasted cost of line losses is evaluated once for each of the 1001 pool price simulations

All costs in $-millions

2013 Forecast

2014Forecast

2015Forecast

P95 $136.9 $117.3 $105.3

Max $168.9 $139.0 $120.6

Draft 2015 Own Costs Budget

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2015 Budget Overview

• 2015 G&A budget

• 2015 capital budget excluding major projects

2012 2013 2014 201590

92

94

96

98

100

93.1

98.3

96.0

94.0

$ M

illio

n

2012 2013 2014 20150

5

10

15

20

25

30 27.5 27.0

19.916.0

$ M

illio

n

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General & Administrative CostsYTD August 2014

$ MillionYTD Aug

Actual*YTD Aug Budget*

YTD Aug Variance

Forecast Year End Variance

2014 Budget*

Staff Costs 41.1 41.2 (0.1) 61.8

Contract Services and Consultants

8.2 8.5 (0.3) 12.6

Administration 3.3 3.6 (0.4) 5.5

Facilities 4.0 4.2 (0.2) 6.3

Computer Services and Maintenance

5.8 5.5 0.3 8.3

Telecommunications 0.9 1.0 0.0 1.5

Total Costs 63.2 64.0 (0.8) 0.0 96.0

* Excludes the Market Systems Replacement Validation Project approved for $2.0 million

Differences are due to rounding

Market Systems Replacement (MSR) Project 1.2 1.3 (0.1) (0.1) 2.0

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2015 Budget Overview

• Continued delivery for AESO and industry required initiatives

– Refer to business initiative presentation

– Most 2015 initiatives began in 2014 or prior years

• Reflects efficiencies and corporate focus

• Leverage existing work to reduce ongoing effort

• Capital development focus on major system projects

– Limited system enhancements in 2015

• Limited flexibility to incorporate unanticipated initiatives

– Consistent with prior budgets, significant changes will require additional review and approval

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General & Administrative Costs2015 Preliminary Budget

$ Million2014

Forecast2014

Budget2015

Budget

Staff Costs 61.8 61.4

Contract Services and Consultants 12.6 9.8

Administration 5.5 4.9

Facilities 6.3 7.9

Computer Services and Maintenance 8.3 8.6

Telecommunications 1.5 1.4

Total Costs 96.0 96.0 94.0

Differences are due to rounding

Market Systems Replacement (G&A) 1.9 2.0 0.5

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Notable Changes in 2015

• Progression of Competitive Process

– Integration of Fort McMurray West transmission line

– Begin Fort McMurray East transmission line process

• 3.5% salary adjustment to maintain market-based compensation

• Rent and operating cost changes on existing leased facilities

• Assignment of existing staff to major project work

– Day-to-day operational requirements for these positions reduced during the project which eliminates need to back-fill

– Energy Management System upgrade, Market Systems Replacement

• Net new maintenance and support costs associated with annual capital investments

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$ Million

2014 Approved Budget * 96.0

Staff Costs (0.4)

Annual salary adjustment (3.5%) 2.0

Capital business resources on major projects (7 FTE ) (1.2)

Staff retention plan (last phase ends Dec 2014) (0.7)

General staff costs (0.6)

Contract Services (2.9)

Administration (0.5)

Facilities 1.5

Computer Services 0.3 (2.0)

2015 Preliminary Budget * 94.0

2015 Preliminary Budget

* Excludes Market System Replacement project

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Competitive Process Initiative

$ Million2013

Plan2013

Actual2014

Plan2015

Plan

Development of Tendering and Commercial Documents

0.9 2.7 1.4 0.6

Evaluation Teams & Fairness Advisor

1.2 1.4 1.0 0.4

Route Development & Owner’s Engineer

1.7 0.7 1.2 0.4

Integration Costs (AESO internal staff)

1.0 1.0 1.0 1.0

Communications 0.8 0.4 0.3 0.2

Issues Based Outreach - 0.2 0.4 0.3

Total G&A Costs 5.6 6.2 5.4 2.8

Differences are due to rounding

29

Transmission Cost Monitoring and Oversight Initiative

Transmission Cost Monitoringand Oversight

2013 Plan

2014 Plan

2015 Plan

Staff (number of staff resources) 4 3 3

Contract resources ($ million) 0.5 0.1 0.1

Capital investment ($ million) 0.3 0.2 -

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Historical G&A Costs

2011 2012 2013 * 2014 * 201575.0

80.0

85.0

90.0

95.0

100.0

88.5

94.3

96.2 96.0

85.5

93.1

98.3

96.0

94.0

Actual/Current Forecast Budget

$ M

illio

n

* Excludes Market System Replacement project

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Interest and Amortization

$ MillionYTD Aug

ActualYTD Aug

BudgetYTD Aug Variance

2014 Budget

2015 Budget

Interest 0.1 0.3 (0.2) 0.5 0.5

Amortization 17.3 18.2 (0.9) 27.3 In Progress

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Other Industry Costs

$ MillionYTD Aug

ActualYTD Aug

BudgetYTD Aug Variance

2014 Budget

2015 Budget

AUC Fees – Transmission 8.7 9.1 (0.3) 13.6 14.0

AUC Fees – Energy Market 4.6 4.8 (0.2) 7.2 7.2

Regulatory Process Costs 0.7 1.2 (0.5) 1.8 In Progress

WECC/NWPP* Costs 0.7 0.9 (0.2) 1.3 1.0

Total Costs 14.8 15.9 (1.1) 23.9

* Western Electricity Coordinating Council / Northwest Power Pool

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Activity-based Cost Reporting

• A transparent presentation of the AESO’s operating costs

• Operations of the AESO described using five key processes

– Key processes are unchanged from 2014

• Activity reporting allows for more detailed understanding of the resources required for process delivery

• Multi-year comparisons will identify shift in priorities/ focus

– No significant shift has occurred in 2015

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not actual data

Summary of AESO G&A Costs

Budget of $94 million

Computer Services and Telecomm ($10 million)

Facilities ($8 million)

Staff and Contract Services ($61 million)

Administration ($5 million)

Information Technology Services ~ Resources ($11 million)

2. Electric System Development

1. Electric System Operations

4. Market Development

3. Customer Access Services

5. Corporate Services

2. Electric System

1. Electric System Operations

4. Market Development

3. Customer Access Services

5. Corporate Services

2014 Budget by Key Process

• Proportion of 2015 costs associated with the five key processes is similar to 2014 ~ no material shift

• Details provided in the final document will include IT costs associated with the five key processes

Capital Budget

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Capital Budget - Historical

Definitions:

Key Capital Initiatives – Most critical projects that the AESO believes must be completed within the timeframe identified

Other Capital Initiatives – Other projects that have more flexibility in planning or delivery so timing is not as critical

Life Cycle Funding – Hardware replacements (end of useful life) and recurring software upgrades and leasehold improvements

Capital Expenditures ($ million)

2015 2014 2014 2013 2012Budget Forecast Budget Actual Actual

Key Capital Initiatives 7.1 5.4 8.4 8.4 7.7

Other Capital Initiatives 3.3 6.1 5.3 7.4 9.6

Life Cycle Funding 5.6 7.0 6.2 6.2 8.2

Sub total 16.0 18.5 19.9 22.0 25.5

Special - MSR 5.8

Total 21.8

Special - EMS Upgrade Implementation 2.3Business case review expected Q2/3 2015

37

Capital Budget – Key Messages for 2014

• 2014 forecast is $18.5M

– Decrease of $1.4M from 2014 budget of $19.9M

• Factors include– Deferred capital requirements for Business Initiatives - Energy

Management System (EMS) deferred to 2015

– Continued improvements resulting from Portfolio Management Process – roadmaps, change control and resource management

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Capital Budget - 2015 draft

Capital Expenditures ($ million)2015 2014 1 2014 2013 2012

Budget Forecast Budget Actual ActualKey Capital Initiatives

1. Reliability (EMS2 elements) 3.6 1.4 3.2 0.5 1.2

Reliability (primarily HVDC3 elements) 0.3 1.6 2.0 1.5 - 2. Critical Infrastructure Protection 0.4 - - - - 3. Cyber Security 1.2 0.2 - - - 4. Wind Integration - 0.8 0.9 0.0 0.3

5. FEOC4 Regulation Implementation - - - 0.2 1.0

6. Market Evolution (Incorporates TCM5) 1.2 0.2 0.2 0.6 0.0 7. Demand Response - 0.4 0.6 0.1 0.0 8. Intertie Framework 0.4 0.3 0.6 2.3 3.4 9. Operating Reserve - 0.3 0.5 0.2 -10. Cost Accountability 0.0 0.2 0.3 - -

11. BUCC6 Replacement - - - 2.4 0.4

Total Key Capital Initiatives 7 7.1 5.4 8.4 8.4 7.7

Other Capital Initiatives 3.3 6.1 5.3 7.4 9.6

Life Cycle Funding 5.6 7.0 6.2 6.2 8.2

SubTotal Capital 16.0 18.5 19.9 22.0 25.5

Special - MSR 5.8

Total Capital 21.8

Special - EMS Upgrade Implementation 2.3

Business case review expected Q2/3 2015

1 August 31, 2014. Spent plus estimate to complete for current year. 4 Fair Eff icient Open Competition2 Energy Management System 5 Transmission Constraints Management3 High Voltage Direct Current 6 Back-up Control Centre

7 ISO Tariff /Info Mgt Reclassif ied - Other

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Capital Budget - Key Messages for 2015

• Initial assessment is that a $21.8M capital budget is required

– Increase of $1.9M from 2014 budget and increase of $3.3M from 2014 forecast

• Factors include– Critical Infrastructure Protection and Cyber Security

requirements (facilities and information technology)

– Planning considerations related to foundational systems

• Market System Replacement project (business applications and supporting infrastructure – $5.8M)

• Energy Management System Upgrade project (advanced applications and supporting infrastructure - $3.6M)

– Reduction in enhancement requirements as a result of foundational system projects

40

Capital Budget - Trend

2012 Actual 2013 Actual 2014 Forecast 2015 BRP0

5

10

15

20

25

30

25.5

22.0

18.5

16.0

Key Other Lifecycle Total Special

$ m

illi

on

s

5.8

TotalCapital Budget

21.8

41

Capital Budget – “Other Capital Initiatives” for 2015 - Summary

• Other application or infrastructure upgrades

– PI Software Upgrade

– System Enhancements

– AESO website tools and content

– Human Resources Management Tool

42

Capital Budget – “Life Cycle Initiatives” for 2015 - Summary

• Investment in general infrastructure

– Communications

– Database

– End User Computing

– Enterprise Services

– Monitoring

– Network

– Non-project Capital

– Servers

– Storage

43

Special Projects

Market Systems Replacement (MSR) Project - Update

MSR Project - Background

Phase I –

Validation/RFI

(2013)

Phase II –

Sourcing/RFP

(2014)

Phase III – Implement

ation (2015 - 2017

tentative)

44

• On December 11, 2013, the AESO Board approved Phase II of the Market System Replacement and Reengineering (MSR) project to address the long term lifecycle needs of our market systems

Business case, plan, and decision to

proceed to Phase II

Business case, plan, cost effective

solution(s) identified, and decision to

proceed to Phase III

In progress

MSR Project - Overview of Phase II Sourcing / RFP

• Implementation strategy– Phase I research indicates that available end-to-end solutions do

not have broad flexibility to mitigate the uncertainty of future market scenarios

– Hence, implementation strategy is to incrementally/iteratively address highest priorities with a minimum amount of change until we gain more certainty regarding future market scenarios

• Phase II objectives align with this strategy:– Refine target state including clear priorities and further defined

business requirements (sufficient for RFP)

– Determine candidate vendors, execute and evaluate RFP(s)

– Establish sequencing and implementation plan for Phase III

45

MSR Project - Phase III RoadmapPhase I – Validation

/RFI

(2013)

Phase II – Sourcing/

RFP

(2014)

Phase III – Implementation (2015 -

2017 tentative)

46

Phase III

Iteration 1 Future Iterations

Design Build

SOW (Contract for Design)Term: Jan 1 to Sept 30, 2015

Note: Future iterations are likely to overlap and run in parallel at certain times

System Integrator (SI) proposal covers entire roadmap(Evaluation criteria considers entire proposal)

Indicative BallparkDetailed/Certain

Level of accuracy of estimates and other aspects of a proposal

MSR Project – Phase III Preliminary Estimates

• MSR Phase III (Implementation) expected to begin in Q1 2015 upon Board approval

• Preliminary estimates are $5.8M capital, $500K G&A in 2015

• Estimates based on following assumptions

• Able to leverage existing infrastructure

• Additional infrastructure requirements are fulfilled via the technology lifecycle program

• Estimates include SI, internal labor and product related costs

47

48

Special Projects

Energy Management System (EMS) Upgrade Project - Update

49

EMS Upgrade Project - Background

• Energy Management System (EMS)

– Mission critical control system used by AESO system controllers to manage and operate the Alberta Interconnected Electric System

• Project Justification

– EMS components at end-of-life

– Risk avoidance, Regulatory Requirements, Vendor Support/Costs

• Project Scope

– Includes EMS network, infrastructure and application suite

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EMS Upgrade Project - Program Approach

• Execute in three phases

– Validation:

–Assessment of long term requirements (business/technology); Evaluation of option risks/opportunities (replace reengineer); Peer Reviews

– Definition:

–Define detailed business, design & implementation requirements; Greater degree of confidence in timing and cost estimates (given the scale of the project)

–Similar approach BCHydro (EMS 3.0 upgrade)

– Implementation

–Development/deployment of design requirements into production

–Data conversion, skills development, commissioning, warranty and decommissioning

51

EMS Upgrade Project – Preliminary Estimates and Timing

Validation (2011 - 2014)

Definition

(2014 - 2015)

Implementation (2015 -

2017+)

Plan & Estimate for the Implementation Phase

Current - Decision to proceed Definition Phase recommendation approved

Q3 2014 Q2 2015 Q3 2015 Q1 2017 Q4 2017

Implementation Phase Warranty & Close Out

• Preliminary Estimates

• Definition Phase is approximately $5.1million

• Implementation Phase range is $11M - $15million

In progress

Thank you