EMIG Electricity Market Investment Group Setting Payments Amounts for Output from OPG’s Prescribed Generation Assets OEB (EB ) September 15, 2006

EMIG Introduction  EMIG thanks the Board and Staff for early consultation.  With the IPSP coming before the Board, the Board will have broad, new responsibilities which affect all of the Ontario electricity sector.  This decision regarding the payment mechanism for OPG’s prescribed assets, which is 40% of the Ontario power capacity, is a key decision affecting the overall structure of the electricity sector. 2

EMIG The Hybrid Market – What Is It?  There are RPP customers, and “market customers”, who principally rely on markets (spot, forward) for short, intermediate and long- term market based price plans.  There is a state owned generator and private sector generators, each helping to meet customer demand and needs.  The public ownership of OPG generation is not the issue. The role of OPG prescribed output in meeting the hybrid market objectives is the question. 3

EMIG  OPG generation output dominates the market as a whole. OPG prescribed asset output is the single largest and most important source of continuously available power.  In a hybrid model, OPG generation and other generators live in a symbiotic relationship. Each needs the other to meet customer needs, both RPP and non-RPP customers needs. 4 The Hybrid Market…

EMIG Role of the OEB  OEB has an obligation to consider the impact on the broader electricity market in determining the payment methodology.  OEB has an obligation to ensure the chosen methodology is consistent with:  Hybrid model  Wholesale and retail competition  Market-based generation investment (not backed by OPA or ratepayers) 5

EMIG Hybrid Model In Transition  Next steps include:  Greater role for the private sector in generation development and assumption of risk  Generation competition  A market open to all customers with a wide range of products  Reduction of OPA to a procurer of last resort  To achieve these goals, output from OPG’s prescribed assets must be available as customer demand for market solutions grows. 6

EMIG Government Supports Forward Market “Another aspect of the market that is currently underdeveloped is forward contracting… Making the markets work for all consumers requires the availability of a variety of flexible products and services.” -Minister Duncan, Speech to the Canada-Europe Roundtable for Business (May 31, 2005) – (Emphasis Added) 7

EMIG The Balancing Act  Ineffective regulation – directly or indirectly inhibiting the availability of OPG power to the market – inhibits private sector investment risk assumption for new generation.  OEB Act (1998) and O. Reg. 53/05 are largely not prescriptive, leaving room for the OEB to use discretion within the overall legislative framework that supports a hybrid model. 8

EMIG OPA: Procurer of Last Resort OEB must recognize OPA’s legislated mandate to “reduce reliance on procurement”:  Integrated Power System Plan Regulation requires OPA to reduce its procurement role by creating conditions that facilitate market-based investment.  It is important that any decision here be consistent with the OPA’s objectives, and not inadvertently undermine the IPSP. 9

EMIG Preferred Methodology  Regulated contracts approach is the best option for incenting OPG to participate in a forward market and for supporting the Government’s objectives for reducing the OPA’s role and facilitating competitive market-based generation.  TransAlta will address this issue in its presentation.  EMIG thanks the Board for the opportunity to make this presentation. 10

EMIG Electricity Market Investment Group Setting Payments Amounts for Output from OPG’s Prescribed Generation Assets OEB (EB ) September 15, 2006