Technical Meeting AESO’s 2015 Forecasts, Own Costs Budget Stakeholder Meeting October 6 and 8, 2014

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 2

2015 BRP - Steps Status Update 3 StepActivity 1.0Invitation to StakeholdersInitiate annual consultation process 2.0AESO Business Initiatives Present preliminary list of business initiatives and solicit stakeholder feedback 3.0Develop Own, Ancillary Service and Line Loss Forecasts Develop Own Costs (G&A/Capital/Other Industry) budget, Ancillary Services and Line Loss Cost forecasts 4.0Technical Review Meeting Present and solicit feedback on Own Costs budget, Ancillary Services and Transmission Line Loss Cost forecasts 5.0AESO Board DecisionDraft AESO Board Decision Document AESO Board meets with stakeholders to discuss issues AESO Board issues final decision 6.0Dispute ProcessAvailable for instances where stakeholder disagrees with the AESO Board Decision

2015 BRP - Steps Calendar (revised) Develop AESO Own Costs, Ancillary Service and Line Loss Forecasts (internal) June - September 4.0 Technical Review Meetings with Stakeholders September 22 - Business Initiatives October 6 (Calgary) and October 8 (Edmonton) - Ancillary Service, Transmission Line Losses Costs Forecast and Own Costs AESO Board Decision 5.0 AESO Board Decision November 14 – Stakeholder presentations 1.0 Notice to Stakeholders 2.0 Updated Business Initiatives 5.0 AESO Board Decision (continued) - finalize

2015 Pool Price Forecast October 2014

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. 6

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

Load Forecast 9

Supply Additions 10

2015 Simulation Results Results from 1001 Price Simulations Results from the P95 Simulation and Comparables 11

Actual/Forecast Price Comparison forecast is based on the P95 iteration

2014 Daily Price Duration Curve 13

2015 Ancillary Services Cost Forecast October 2014

Cost of Ancillary Services Annual Comparison All costs in $-millions 2013 Forecast 2013 Actual 2014 Forecast 2014 Projected 2015 Forecast Operating Reserve * $181.2$362.1$193.7$219.7$130.5 TMR *$2.0$ 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 $2.7$2.5 Total$259.2$389.4$224.5$245.9$ Forecast 2013 Actual 2014 Forecast 2014 Projected 2015 Forecast 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

Forecast Methodology Operating Reserves 16 All costs in $-millions 2013 Forecast 2014 Forecast 2015 Forecast P95$181.2$193.7$130.5 Max$271.1$366.4$261.5

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 All costs in $-millions2015 Forecast Transmission Must Run- Blackstart$5.0 LSS/LSSi$25.0 Other$2.5

2015 Transmission Line Losses Cost Forecast 18

Cost of Transmission Line Losses Annual Comparison Actual 2012 Actual 2013 Actual 2014 Projected 2015 Forecast Cost ($-millions) $183.3$150.5$181.7$145.1$105.3 Volume (GWh) 2,3842,2552,3212,3612, Actual 2012 Actual 2013 Actual 2014 Projected 2015 Forecast Pool Price ($-millions) $76.22$64.32$80.19$59.39$41.49

Forecast Methodology Line Losses 20 All costs in $-millions 2013 Forecast 2014 Forecast 2015 Forecast P95$136.9$117.3$105.3 Max$168.9$139.0$120.6

Draft 2015 Own Costs Budget

2015 Budget Overview 2015 G&A budget 2015 capital budget excluding major projects 22

General & Administrative Costs YTD August 2014 $ Million YTD Aug Actual* YTD Aug Budget* YTD Aug Variance Forecast Year End Variance 2014 Budget* Staff Costs (0.1)61.8 Contract Services and Consultants (0.3)12.6 Administration3.33.6(0.4)5.5 Facilities4.04.2(0.2)6.3 Computer Services and Maintenance Telecommunications Total Costs (0.8) * Excludes the Market Systems Replacement Validation Project approved for $2.0 million Differences are due to rounding 23 Market Systems Replacement (MSR) Project (0.1) 2.0

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 24

General & Administrative Costs 2015 Preliminary Budget $ Million 2014 Forecast 2014 Budget 2015 Budget Staff Costs Contract Services and Consultants Administration Facilities Computer Services and Maintenance Telecommunications Total Costs Differences are due to rounding 25 Market Systems Replacement (G&A)

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 26

$ 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) Facilities1.5 Computer Services0.3(2.0) 2015 Preliminary Budget * Preliminary Budget * Excludes Market System Replacement project 27

Competitive Process Initiative $ Million 2013 Plan 2013 Actual 2014 Plan 2015 Plan Development of Tendering and Commercial Documents Evaluation Teams & Fairness Advisor Route Development & Owner’s Engineer Integration Costs (AESO internal staff) 1.0 Communications Issues Based Outreach Total G&A Costs Differences are due to rounding 28

Transmission Cost Monitoring and Oversight Initiative Transmission Cost Monitoring and Oversight 2013 Plan 2014 Plan 2015 Plan Staff (number of staff resources)433 Contract resources ($ million) Capital investment ($ million)

Historical G&A Costs * Excludes Market System Replacement project 30

Interest and Amortization $ Million YTD Aug Actual YTD Aug Budget YTD Aug Variance 2014 Budget 2015 Budget Interest (0.2)0.5 Amortization (0.9)27.3 In Progress 31

Other Industry Costs $ Million YTD Aug Actual YTD Aug Budget YTD Aug Variance 2014 Budget 2015 Budget AUC Fees – Transmission8.79.1(0.3) AUC Fees – Energy Market4.64.8(0.2)7.2 Regulatory Process Costs0.71.2(0.5)1.8 In Progress WECC/NWPP* Costs0.70.9(0.2) Total Costs (1.1)23.9 * Western Electricity Coordinating Council / Northwest Power Pool 32

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

not actual data Summary of AESO G&A Costs Budget of $94 million 34 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

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 36

Capital Budget – Key Messages for 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 37

Capital Budget draft 38

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 39

Capital Budget - Trend 40

Capital Budget – “Other Capital Initiatives” for Summary Other application or infrastructure upgrades –PI Software Upgrade –System Enhancements –AESO website tools and content –Human Resources Management Tool 41

Capital Budget – “Life Cycle Initiatives” for Summary Investment in general infrastructure –Communications –Database –End User Computing –Enterprise Services –Monitoring –Network –Non-project Capital –Servers –Storage 42

Special Projects Market Systems Replacement (MSR) Project - Update 43

MSR Project - Background Phase I – Validation/RFI (2013) Phase II – Sourcing/RFP (2014) Phase III – Implementation ( 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 Roadmap Phase I – Validation/RFI (2013) Phase II – Sourcing/RFP (2014) Phase III – Implementation ( tentative) 46 Phase III Iteration 1 Future Iterations DesignBuild 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 46 System Integrator (SI) proposal covers entire roadmap (Evaluation criteria considers entire proposal) IndicativeBallpark Detailed/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 Q 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

Special Projects Energy Management System (EMS) Upgrade Project - Update 48

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 49

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 50

EMS Upgrade Project – Preliminary Estimates and Timing 51 Validation ( ) Definition ( ) Implementation ( ) Plan & Estimate for the Implementation Phase Current - Decision to proceed Definition Phase recommendation approved Preliminary Estimates Definition Phase is approximately $5.1million Implementation Phase range is $11M - $15million In progress

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