1. ISO Rules 9.1 Transmission Facility Projects Industry Workgroup Meeting January 16, 2013

2. 2 Agenda Welcome and Introductions Objective for this module (NID and PPS cost estimates) Workgroup meeting logistics Overview of NID and PPS activities for cost estimating purposes (led by ATCO and AltaLink) Review and discuss terms and proposed concepts/changes Next steps

3. 3 Working Group Members ADC – Colette Chekerda AESO – Evelyn Kelly, Fred Ritter, Rob Senko, Bill Strongman, Kelly Yagelniski ATCO Electric – Natalie Bunting, Steve Ambeault AltaLink – Darcy Fedorchuk, Gord Chalk, Janette Yearsley ENMAX – Shiv Kumar, Mike Wong, Stan Danko EPCOR – Suresh Sharma, Travis Robinson IPCAA – Jake Cheng Similan Consulting Inc.– Jana Mosley Suncor – Baly Farmahan TFCMC – Henry Yip TransAlta – Anirban Bosu

4. 4 Objective Prepare required changes to: ISO Rule 9.1.2; associated information documents; templates; or business practices to improve the quality and accuracy of cost estimates and enable the AESO: to appropriately evaluate alternatives for potential transmission solutions to address a Need; to enable cost estimate “reasonableness” assessments and project scope reviews to support TFO FA filings; and to provide quality and enhanced transparency of cost reporting to the AESO’s stakeholders.

5. 5 Workgroup Meeting Logistics 10:00 a.m. – 3:00 p.m. Alternate between Calgary and Edmonton –Can the Edmonton meetings be hosted by ATCO or EPCOR? Conference call capability Wednesday January 30, 2013 - Edmonton Wednesday February 20, 2013 - Calgary Wednesday March 13, 2013 - Edmonton Wednesday March 27, 2013 - Calgary Wednesday April 10, 2013 - Edmonton

6. Roles and Expectations Workgroup members –Attend all meetings or fully brief alternates –Obtain feedback from your organization with regard to all discussion items AESO –Organizes and leads the meetings –Posts the presentation on the AESO website following each meeting No meeting minutes prepared or posted –Makes the final determination on changes to ISO rules, information document, template and business practice –AESO posts a summary of proposed changes on the AESO website for industry 6

7. Overview of NID and PPS activities Discussion led by –ATCO Electric –Altalink 7

8. 8 Terms for Review Baseline Cost Estimate –Accuracy –Scope Change Assumptions Contingency Facility Costs –Material Costs –Labour Costs –Turn-key Costs Non-Facility Costs –Distributed Costs –Owners –Other Costs Escalation

9. 9 Terms for Review Defined terms from ISO Rules 9.1.2 TFO Obligation to Provide Estimates and Proposals: NID Estimate means a document to be completed substantially in the form of the “Needs Application Cost Estimate” posted by the ISO on its website. Project means the project generally described as any one of the following: (i) the means or manner by which a constraint or condition affecting the operation or performance transmission system could be alleviated as identified in a NID approved by the EUB pursuant to s. 34(3) of the Act; (ii) the request for system access service pursuant to s. 5(5)(b) of the TR; (iii) all the transmission facility proposals referred to in s. 35(1)(a) of the Act with respect to a specific approved NID; or (iv) the “transmission line”, as defined in the HEEA, which has been approved by the EUB pursuant to the HEEA.

10. 10 Terms for Review Defined terms from ISO Rules 9.1.2 TFO Obligation to Provide Estimates and Proposals: Service Proposal means a document to be completed substantially in the form of the "Proposal to Provide Service" posted by the ISO on its website. Service Proposal Estimate means a document to be completed substantially in the form of the “Service Proposal Estimate” posted by the ISO on its website.

11. Base Line Cost Estimate Interpretation: –The $100M becomes the project baseline cost at the NID estimate stage once accepted by the AESO, and –It is understood and accepted that the actual project costs could vary between $70M and $130M 11

12. Base Line Cost Estimate Interpretation: –The baseline cost is adjusted to $105M at the PPS stage once accepted by the AESO, and –It is understood that the actual project costs could vary between $94.5M and $126M –The AESO does not reconfirm the NID preferred alternative because the PPS estimate accuracy levels are within the +/-30% accuracy levels of the NID estimate –If the PPS estimate accuracy levels are outside the +/-30% accuracy levels of the NID estimate then the AESO must reassess the preferred alternative which could lead to: Requesting the TFO to perform further work on the PPS; or Accepting the PPS; or Declining the PPS and re-starting the project. 12

13. Base Line Cost Estimate Interpretation: –The baseline cost is adjusted to $110M at the PPS stage once accepted by the AESO, and –It is understood that the actual project costs could vary between $99M and $121M 13

14. 14 Base Line Cost Estimate Base line cost estimate includes: –Project cost, plus –Contingency, plus –Escalation The base line is prepared in current dollars –The cost variance is the difference between the base cost/adjusted base cost and actual costs For discussion: –Is there a need to formally define the base line cost? –Is it sufficient to provide an explanation in the Information Document?

15. Assumptions, Contingency, Scope Change 15

16. Assumptions, Contingency, Scope Change 16

17. Assumptions Assumptions include items such as: –Length of line –Geotechnical conditions –Outages can be accommodated when needed –Lack of validation of earthwork quantities –Construction contractor availability and bid price –Pipeline and environment mitigation –River, high-way, line crossings –Use of a helicopter 17

18. Assumptions Assumptions do not items such as: –Scope changes –Design criteria change –Legislative change –Extraordinary events (such as major strikes, natural disasters,) For discussion: –Should a checklist of assumptions be developed for consideration on every project so there is consistency 18

19. 19 Contingency Contingency: –Stems from assumptions; assumptions lead to a risk assessment which could result in the need for a contingency amount –Contingency is included in the base line cost estimate –Allows for items such as conditions or events for which the state, occurrence, or effect is uncertain and that experience shows will likely result in additional costs For discussion: –Is there a need to formally define contingency? –Is it sufficient to provide an explanation in the Information Document? –Should there be an threshold associated with contingency, i.e. Cannot be more than X% of the base line cost

20. 20 Scope Change A scope change is: –Functionality/costs not contemplated in the project scope and translated into the baseline cost or contingency For discussion: –Is there a need to formally define scope change? –Is it sufficient to provide an explanation in the Information Document?

21. 21 Facility and Non-Facility Costs Facility Costs –Labour – engineering, site preparation and survey, construction, commissioning –Material - by component Non-Facility Costs –Owners Costs - PPS, FA, land –Distributed Costs – procurement, project management, construction management, contingency –Other Costs – AFUDC, E&S For discussion: –Is there a need to formally define distributed costs? –Is it sufficient to provide an explanation in the Information Document?

22. 22 Distributed Costs Distributed costs includes: –Procurement - the labour costs required in the purchasing of project materials –Project management - labour required to manage projects as well as the partial cost of building space, utilities, etc –Construction management (labour only) –Warehouse, yard, (include in distributed costs or elsewhere?) –Logistics – camp and office (include in distributed costs or elsewhere?) –Helicopters, lay down yards (include in distributed costs or elsewhere?) –Escalation Suggest removing from distributed costs and include as a separate line item –Contingency Suggest removing from distributed costs and include as a separate line item For discussion: –Is there a need to formally define distributed costs? –Is it sufficient to provide an explanation in the Information Document?

23. 23 Owners and Other Costs Owners costs include: –Preparing the cost estimates (NID and PPS) Includes the labour related to any engineering required to prepare the cost estimate Includes the labour related to preparing the PPS Proposal (word document) –Preparing the facilities application (includes AUC 007 requirements, i.e. PIP) –Regulatory proceeding associated with facilities application –Land costs For discussion: –Is there a need to formally define distributed costs? –Is it sufficient to provide an explanation in the Information Document?

24. 24 Owners and Other Costs Other costs include: –Allowance for funds used during construction (“AFUDC”) –Engineering and Supervision This is an AUC approved percentage which is applied to projects Includes costs such as warehousing, accounting, fleet, office space, project management costs that are not specific to a project, supervision and engineering not specific to a project It does not include costs that can be allocated directly to a project For discussion: –Is there a need to formally define distributed costs? –Is it sufficient to provide an explanation in the Information Document?

25. 25 Labour and Material Costs Labour Costs – engineering, site preparation, survey, brushing, right of way preparation, construction, commissioning, installation, minor tools to support construction, rental of equipment and tools, stringing a conductor –Internal –Contractor Material Costs – includes only the costs for the material, no labour associated with procuring the materials (includes FOB) Turn-key – some project costs are turn-key where both labour and material are consolidated –Converter station –material and installation –Typically third party For discussion: –Is there a need to formally define turnkey, labour and material costs? –Is it sufficient to provide an explanation in the Information Document?

26. 26 Escalation Escalation includes: –Changes in the cost or price of specific goods or services in a given economy over a period specific to an item or class of items (not as general in nature). –Driven by changes in technology, practices, and particularly supply-demand imbalances that are specific to a good or service in a given economy. –Transmission project costs are estimated using current dollars –Escalation is used to allow for increases in the cost of material and labour during the project time period; escalate current costs into the future, not risk of labour availability (contingency) For discussion: –Can all TFOs use an agreed upon index for purposes of escalation? –If so, what would this index be?

27. NID Cost Estimate – Valid Time Period For discussion: –Is there a need to establish a consistent time period regarding validity of the NID cost estimate? –If so, what is the time period? –Does this time period need to be set out in a rule? –What impact, if any, does this have on the preparation of the NID cost estimate? 27

28. ISO Rules 9.1 Terms NID Estimate Project Service Proposal Service Proposal Estimate Questions for discussion: –Is there a need to update these definitions to improve the quality and accuracy of cost estimates? 28

29. 29 Next Steps Discuss the “discussion items” within your organizations –Bring back organizational views to the January 30 meeting Alignment with proposed changes or alternate recommendations

30. Thank you