Interpretation Bulletins are produced by the IESO to give notice to market participants of clarifications regarding the interpretation, application or implementation of a market rule. Terms and acronyms used in this Form that are italicized have the meanings ascribed thereto in Chapter 11 of the market rules. Publication Date: August 25 2014 PART 1 MARKET RULE INFORMATION Costs Reimbursable by the IESO under the Real-Time Generation Cost Guarantee ( RT-GCG ) Program List of Relevant Market Rules: Chapter: 1 Section: 12 Chapter: 7 Section: 2.2B Chapter: 7 Section: 6.3A Chapter: 9 Section: 4.7B Chapter 11 Definitions: combined guaranteed costs, facility, generation facility, generation station service, generation unit, minimum generation block run-time, minimum loading point, minimum run-time, perstart, market participant, market manual, market rules, transmission service MKRI-1 Issue 1.0 Public Page 1 of 7
PART 2 OTHER RELEVANT MARKET DOCUMENTS Market Manual 4: Market Operations: Part 4.3: Real-Time Scheduling of the Physical Markets section 1.11 Market Manual 5: Settlements: Part 5.5: Physical Markets Settlement Statements section 1.6.4 PART 3 BACKGROUND INFORMATION The IESO has been conducting audits of generation cost guarantee ( GCG ) payments made to market participants under the program. During these audits, the IESO observed submissions for costs not caused by an eligible GCG start and ramping to the minimum loading point ( MLP ). The IESO is therefore issuing this bulletin to reinforce the types of costs which are recoverable (and not recoverable) under the market rules. This bulletin should be read in a manner consistent with applicable market rules and market manuals. PART 4 INTERPRETATION AND APPLICATION A General Audit 1. Initial reimbursement of submitted costs does not represent a final determination that costs are recoverable under the RT-GCG program. In all cases, in accordance with the market rules, cost submissions will be subject to audit at any time to determine, among other things, whether submitted costs are recoverable. Requests for clarification 2. The IESO s Director of Settlements is the designated representative of the IESO authorized to provide further clarification regarding this bulletin or recoverable costs under the RT-GCG program. 3. Any request for clarification can be made in writing via IESO Customer Relations and should include all relevant facts. The IESO s Director of Settlements will provide responses in writing, based upon the facts disclosed in the request. Where relevant, facts presented in a request for clarification may be subject to review in an audit. Eligibility 4. The RT-GCG program is only available to generation facility resources that are registered under the RT-GCG program in accordance with applicable market rules and MKRI-1 Issue 1.0 Public Page 2 of 7
market manuals. 5. Eligibility is determined by the IESO on a per-start basis. In order to achieve an eligible GCG start, the generation facility resource must, among other criteria, operate at or above its MLP from the time it achieves MLP until the end of its minimum generation block run-time ( Eligible GCG Start ), unless otherwise directed by the IESO. 6. The RT-GCG program will reimburse certain fuel costs and operating and maintenance ( O&M ) costs relating to the period of start-up and ramp to MLP ( the Recoverable Period ). 7. To be recoverable under the RT-GCG program, the generation facility resource cost must be assessed by the IESO as reasonable, including that it must have been paid. 8. Notwithstanding paragraph 7, to take account of normal business payment cycles, a cost which is reasonably expected by the participant to be paid within 90 days of the date of submission is eligible for initial reimbursement for the purposes of that cost submission. Proof of submitted costs 9. The market participant is responsible for proof that the submitted costs have been paid. Representation of such costs must be correct and complete at the time of submission, with sufficient supporting documentation available such that an auditor can readily verify them. Calculation of baseline 10. The portion of costs relating to the Recoverable Period which may be eligible for reimbursement is the amount above the baseline level of costs that would otherwise exist absent the Eligible GCG Start. Gas and steam turbine operations 11. Where a steam turbine is brought online following gas turbine synchronization, and that steam turbine is also registered for the RT-GCG program, the costs related to that steam turbine are recoverable on the same basis and subject to the same limitations and conditions as similar costs associated with the gas turbine. In such a case, costs incurred by the steam turbine generator should be allocated only to the steam turbine GCG submissions. Hedged arrangements 12. The RT-GCG program provides for recovery of the market (replacement) cost during the Recoverable Period. This may not equate to a hedged price. MKRI-1 Issue 1.0 Public Page 3 of 7
Fixed costs not recoverable 13. Fixed costs are not recoverable under the RT-GCG program. Currency and exchange rate Taxes 14. Reimbursement of eligible costs is made in Canadian dollars. For O&M costs, the exchange rate used by the IESO to determine the Canadian dollar equivalent of eligible costs denominated in a foreign currency is either: (i) the foreign exchange rate charged by the market participant s bank on the day of payment; or (ii) the noon hour Bank of Canada rate on the day the generation facility resource is synchronized in relation to the Eligible GCG Start. For fuel costs, the exchange rate used by the IESO is the noon hour Bank of Canada rate on the day the generation facility resource is synchronized in relation to the Eligible GCG Start. 15. Foreign exchange transaction fees or other currency-related costs are not recoverable under the RT-GCG program. 16. Harmonized Sales Tax ( HST ) or other tax-related costs are not recoverable under the RT-GCG program. B Fuel Costs Commodity price 17. In determining the recoverability of the commodity cost of fuel, the IESO uses the replacement cost. Where available, the most appropriate index price of the relevant fuel during the Recoverable Period is deemed the replacement cost of the fuel. For example, for natural gas, the Daily Dawn Day-Ahead NGX price that is applicable for gas delivered during the Recoverable Period is used. 18. A weighted average cost methodology is not an accepted fuel cost methodology for the purposes of the RT-GCG program. Service charges 19. Payments to a third party for services in addition to the fuel purchase to which they relate, such as marketing or procurement fees, are not recoverable. Transportation and storage costs 20. Certain costs relating to the transportation of the fuel commodity to the generation facility, to the extent related to the Recoverable Period, are reimbursable under the RT- GCG program. For example: (a) natural gas losses in transit, based upon gas required for compressor stations to MKRI-1 Issue 1.0 Public Page 4 of 7
move the commodity between the relevant points in the pipeline, as determined by the company moving the gas; and (b) rail, truck or barge costs to move oil or biomass fuel to the generation facility. 21. Fixed transportation or storage charges, for example fixed pipeline costs, are not recoverable. Fuel testing 22. Certain costs incurred to test fuel are recoverable under the RT-GCG program, but only to the extent related to the Recoverable Period. Storage injection/withdrawal charges 23. Where a market participant could not purchase gas from the spot market and therefore could not avoid incurring storage or injection charges, the costs are recoverable, but only to the extent related to the Recoverable Period. Balancing/overrun charges 24. Where a market participant could not avoid incurring balancing or overrun costs the costs are recoverable, but only to the extent related to the Recoverable Period. C Operating and Maintenance Costs Generation station service 25. Costs incurred for generation station service during the Recoverable Period over and above the baseline electricity consumption, which would not be avoided if the generation facility resource did not have the Eligible GCG Start, are recoverable. This may include the hourly Ontario energy price, uplift (net of any applicable rebates) and global adjustment, as applicable. Costs to maintain vacuum 26. Costs incurred by a generation facility resource to maintain vacuum prior to initiation of an Eligible GCG Start are not recoverable. Overtime 27. Overtime costs for maintenance and operations personnel that are caused by an Eligible GCG Start are recoverable, but only to the extent related to the Recoverable Period. Planned maintenance 28. Certain costs paid to a third-party provider in respect of planned maintenance for the generation facility resource, whether pursuant to a contractual service agreement MKRI-1 Issue 1.0 Public Page 5 of 7
( CSA ) with the original equipment manufacturer ( OEM ) or otherwise, are recoverable, but only to the extent related to the Recoverable Period. Such costs may be submitted on a start-by-start or hourly basis, depending on the type of maintenance work completed as well as the cost drivers for that maintenance. The submissions may be eligible for reimbursement after completion of the maintenance. 29. For greater clarity, the term planned maintenance means: i) for gas turbine generation units, costs which relate to equipment outages for combustion inspection, hot gas path inspection and major inspection. ii) for steam turbine generation units, costs which relate to equipment outages for minor inspection, medium inspection and major inspection 1. CSA maintenance fees paid in advance 30. Certain fees paid pursuant to a CSA in advance of planned maintenance in respect of a generation facility resource are recoverable, but only to the extent related to the Recoverable Period. The submissions may be eligible for reimbursement prior to completion of the maintenance. Consumable parts 31. Costs relating to the repair, refurbishment or replacement of generation facility resource parts, for wear or consumption related to the Recoverable Period, are recoverable under the RT-GCG program. The cost of spare replacement parts is not recoverable. Replacement of capital parts is not a recoverable cost. For clarity, capital parts are deemed to be those that have a useful life of more than one year and a value of more than $50,000 (either individually or with respect to the combined set of component parts). Examples of capital parts include but are not limited to combustion components, rotors, blades, vanes, shrouds, nozzles, casings, bearings, generator hydrogen seals and buckets. Other consumables 32. Certain costs relating to products used or consumed during start-up or operation of the generation facility resource, such as water and chemicals, are recoverable, but only to the extent related to the Recoverable Period. Disposal costs 33. Disposal costs from the use of air, water and chemicals, as well as for testing and treating of emissions, are recoverable, but only to the extent related to the Recoverable 1 Terminology varies amongst OEMs, and terms used in this bulletin therefore may not pertain to all participants circumstances. Participants may request clarification from the IESO regarding the recoverability of a cost. MKRI-1 Issue 1.0 Public Page 6 of 7
Period. Balance-of-plant maintenance 34. Certain balance-of-plant maintenance costs of the generation facility for equipment that is not part of the gas turbine or steam turbine are recoverable, but only to the extent related to the Recoverable Period. In determining the recoverability of such costs for an applicable combined cycle start, the IESO allocates the balance of plant costs evenly across the total number of generation facility resources. Network demand and related charges 35. Generation facilities may be subject to a network demand, transmission service and connection charges, based upon peak electricity consumption. To the extent that a peak upon which the charge is set occurs during a Recoverable Period, the cost caused by the Eligible GCG Start is recoverable. The recoverable portion will be calculated as the charge incurred as a result of the Eligible GCG Start, less the charge associated with the next highest hourly demand value that falls outside of a Recoverable Period during the network demand charge billing period. The foregoing guidance on the interpretation is binding on the IESO subject to the provisions of Chapter 1, Section 12.1.5. MKRI-1 Issue 1.0 Public Page 7 of 7