Presentation to Interested Parties June 16, 2006

1. Draft 2 – Staff Discussion Paper“Regulatory Options for Setting Payments for the Output from OPG’s Prescribed Assets” Presentation to Interested Parties June 16, 2006

2. Background • OEB responsibility for setting payments for OPG’s “prescribed assets” via section 78.1 of the OEB Act and Regulation 53/05 • Payments for output from prescribed assets to be set by OEB no earlier than April 1, 2008 • Staff Discussion paper posted May 8, 2006

3. Staff Discussion Paper Three Basic Options Described • Cost of Service (and modified cost of service) • Incentive Regulation (based on cost of service or based on existing payments) • Regulatory Contracts Discussion Paper was the basis for consultations with stakeholders.

4. Stakeholder Discussions • Five meetings held with stakeholders – Plenary and Small Group • Participants included: • OPA • Power Workers Union • IESO • Bruce Power • OESC • Direct Energy • Constellation Energy • Schools • LIEN • CME • AMPCO • Energy Probe • HydroOne

5. Views Expressed at Stakeholder Meetings • Rate of return (views range from commercial rate to zero, based on “heritage” asset definition) • Need for transparency in reviewing OPG’s costs and revenues • Need for regulatory model to facilitate competition • The prescribed assets are not to be paid market prices • Review of all COS information in one proceeding will be onerous: needs to be done thoroughly, even if this is over several proceedings • Efficiency of OPG needs to be addressed • As a crown corporation, incentive regulation may not be effective for OPG

6. Staff Recommended Model • Incentive Regulation is the basic model. Use existing base payments as the starting point • Increase payments by input cost factor minus productivity factor – TBD in first proceeding • Examine efficiency benefits of retaining/changing daily threshold for hydraulic production and Beck P.S. receiving different payments • Board staff to commission study of input cost and productivity factors

7. Staff Recommended Model • OPG to file cost and financial information on a quarterly basis,(guidelines TBD), segmented by nuclear and hydraulic assets, to: • Inform analysis of input cost and productivity factors in first proceeding; • Create accounting structure to be regulated (allocation, capital structure and level of detail) • Other issues to be examined in first proceeding: payment structure, “Z” factors and “Off Ramps”, SQIs • Term to be determined based on annual review of actual financial information • Future issue to be reviewed: ROE

8. Benefits of this Approach • More efficient regulatory proceeding compared to CoS; more transparent than Regulatory Contracts • Consistent with policy and legislative framework for OPG’s prescribed assets • Ratepayer benefits – productivity factors • Ongoing information disclosure • Potential for efficiency incentives – IR formula; threshold and Beck P.S.

9. Next Steps • Post Draft 2 on website: week of June 19th • Final Discussion Paper: June 30th • Submissions from Interested Parties – July 18th • Replies from Interested Parties (OPG, others) – July 27th