1. 1 Environmental Tracking System Fees Regulatory Affairs Standing Committee September 11, 2003 Market Evolution Program Update

2. 2 Purpose of this Presentation Introduce the Tracking System Discuss the proposed Tracking System fees design Address the Tracking System’s current status

3. 3 Tracking System Background Tracking System regulation developed by the MOE under legislative authority of the Ontario Energy Board Act, 1998. Regulation prescribes high-level functionalities, roles, and responsibilities. The IMO is designated as Administrator.

4. 4 Tracking System Principles Unbundle property rights associated with electric energy: (a) electrons tradable in power markets (b) environmental attributes tradable in certificate markets

5. 5 Tracking System Principles Certificate: Electronically-generated and transferable record created by the Tracking System, representing the electricity source, types and quantities of emissions, and other characteristics of 1 MWh of electricity related to the generation facility that produced it.

6. 6 Policy Rationale Emissions disclosure for consumer information Provides verification for retail claims Backstop for Renewable Portfolio Standard compliance Facilitates development of renewable energy markets

7. 7 Fees Proposed Regulation provides that the IMO shall establish a fees schedule for the Tracking System, payable by Generators and Certificate Sellers. Tracking System fees are subject to OEB approval. The regulation prescribes who pays, not how or on what basis.

8. 8 Fees Design Principles Proposed design is premised on the principles of: - Simplicity, - Recovery of IMO revenue requirement, - Fairness, and - Flexibility going forward.

9. 9 Fees Design Options Fees design options considered: 1. Fixed fee on all participants 2.Bundled variable fee on wholesale generator production 3.Bundled variable fee on wholesale and retail generator production 4.Bundled variable fee on wholesale and retail generator production and fixed nominal fee on certificate sellers 5.Unbundled variable fees on production, imports, certificate sellers, etc.

10. 10 Fees Design Approach Notion of “Day 1” and “Day 2” fees design approach: - Day 1 = upon Tracking System Deployment. - Day 2 = at some appropriate future time. Informed by the following factors: - Desirability of a smooth Tracking System start-up; -Limited Tracking System-related historic data; -Limited billing relationships with Tracking System participants.

11. 11 Fees Design Proposal Day 1:(a) Variable fee on metered generation output (fee per-MWh) (b) Fixed nominal annual fee on Certificate Sellers (fee per-year) Day 2:Further unbundling as appropriate

12. 12 Program Status Awaiting passage of Regulation Continuing with vendor selection process Preparing OEB Rate Order application Developing Stakeholder forum

13. 13 Summary The IMO is designated as Tracking System Administrator Proposed Tracking System Regulation provides that IMO shall establish a fee schedule for Tracking System costs Fees design proposal entails a “Day 1”, “Day 2” approach Day 1 fees design consists of a variable fee on metered generation output and a fixed nominal annual fee on Certificate Sellers Regulation has not passed yet OEB Rate Application submission to follow passage of Regulation

14. 14 Questions