In
its Q1 2009 financial report, Ontario Power Generation reported “Revenue
related to contingency support agreement for the Nanticoke and Lambton
generating stations of $39 million”. In Q2, OPG reported revenue of $140 million,
for a total of $179 million year-to-date. The table below shows production,
market revenue and payment data for these plants during Q1 and Q2, and the
total for the first 6 months of 2009.[1],[2]
Q1
$/MWh
Q2
$/MWh
First
6 months
$/MWh
Total Output of Lambton and Nanticoke
(MWh)
4,140,594
1,801,932
5,942,526
Total Market Revenue
$212,748,226
$51.38
$63,197,645
$35.07
$275,945,871
$46.44
Contingency Support Payment
$39,000,000
$9.42
$140,000,000
$77.69
$179,000,000
$30.12
Total Revenue
$251,748,226
$60.80
$203,197,645
$112.77
$454,945,871
$76.56
The
agreement with the Ontario Electricity Financial Corporation (OEFC) provides
for “the continued reliability and availability of OPG’s Lambton and Nanticoke
generating stations” and was put in place in accordance with the Shareholder
Resolution that an appropriate recovery mechanism be established to enable OPG
to recover the costs of its coal-fired generating stations following
implementation of OPG’s carbon dioxide (“CO2”) emissions reduction strategy.
The agreement is structured to provide payments from OEFC to OPG if defined
revenues of Lambton and Nanticoke are not sufficient to cover OPG’s costs for
Lambton and Nanticoke.If those Lambton
and Nanticoke revenues exceed OPG’s costs for Lambton and Nanticoke, then OPG
is required to make revenue sharing payments to OEFC. The agreement apparently
operates like the reliability-must-run (RMR) agreement that compensates OPG’s
Lennox Generating Station for out-of-market costs. Unlike the Lennox RMR agreement,
however, the details of the contingency support agreement are not made public
and the agreement is not subject to regulatory oversight.
Citing
higher fuel prices and fuel-related costs at OPG’s fossil-fuelled generating stations
and lower average sales prices for its unregulated generating stations, OPG
reported that “the unfavourable impact on gross margin at Lambton and Nanticoke
generating stations was largely offset by the recognition of revenue of $180
million related to the contingency support agreement with the OEFC.”
OPG
explains why, when fuel prices were declining broadly in North America, its fuel
expenses were higher:
The reduced demand
for coal-fired generation during the six months ended June 30, 2009 has
resulted in excess coal supplies. This has resulted in OPG negotiating
reductions to coal supply contracts, which includes cancellations and deferral
of shipments. Costs associated with the cancellations and deferrals are
recorded as incurred. The costs incurred for coal contract adjustments were
offset by the recovery from the contingency support agreement with the OEFC.
Costs
related to the agreement are treated like out-of-market payments to non-utility
generators (NUGs), also under contract to the Ontario Electricity Financial Corporation,
pursuant to O. Reg. 427/04 (Payments to the Financial Corporation re Section
78.2 of the Ontario Energy Board Act,
1998).
These
costs are recovered from customers via the Global Adjustment. The way in which
this can be calculated is suggested in the most recent version of the OEB’s Regulated
Price Plan Manual, under the section “Cost Adjustment Term for NUGs and Other
Generation under Contract with OEFC”, with specific reference to the third term
(highlighted) of the following equation:[3]
CRPP
= M + α [(A – B) + (C – D) + (E – F)
+ G] + H
According
to the RPP manual: “… The amount that the NUGs (and OPG) would receive under
the Market Rules, quantity D in Equation 1, is their hourly production times
the hourly energy price (HOEP). The amount that the NUGs (and OPG) receive
under their contracts with OEFC, quantity C in Equation 1, is not publicly
available information, although the IESO recently began
to publish monthly aggregate payments to the NUGs (back to September 2007).”
