ELECTRICITY DEREGULATION IN ONTARIO

IMO Says New Ontario Electricity Market Will Attract Investment

"The decision to open the province's electricity market this spring has attracted significant investments in the province's electrical infrastructure," said Paul Murphy, Chief Operating Officer at the IMO.

"The more than 3,000 MW that will be added to the province or returned to service in the next year-and-a half will increase available resources by more than 10 per cent which will further enhance reliability and competition in Ontario."

Ontario's electricity market will open to competition on May 1, 2002.

The IMO has issued an annual 10-Year Outlook and quarterly 18-Month Outlook that examine the ability of Ontario's electricity system to meet customer demands over the long and short term. The reports are designed to inform the marketplace of the demand supply/balance in the province. This will identify potentially adverse conditions that might suggest adjustment or co-ordination of maintenance outage plans for generation and transmission equipment or be addressed by market participants acting in response to market opportunities.

"These are essentially our first Outlooks for the open marketplace," Murphy said. "They are designed to advise wholesale buyers and sellers of the upcoming demand/supply mix in the province so that they can make appropriate business decisions. As part of our preparations for the new market, we have been issuing these for the past two years and are confident that they represent effective planning tools for the Ontario marketplace."

Outlook Report
The 18-Month Outlook report assesses the security and adequacy of the Ontario Electricity System for the period from April 2002 through September 2003. This assessment is based on forecasts of electricity demand and available supply combined with current information on the configuration and capability of the transmission system. Outage plans of generators and transmitters are based on information available as of February 2002.

During the Outlook period, the IMO forecasts that Ontario's available generation exceeds projected demands. Over this period, approximately 3,000 MW of additional generation resources are expected to either return to service or be placed in service for the first time -- thereby enhancing the reliability of the Ontario electricity system. During the first half of the Outlook there are periods when Ontario's available reserves are forecast to be between 2,000 and 2,500 MW. These reserves are below the IMO's required planning reserve levels, but do not account for additional resources from outside Ontario that are expected to be available. Reserves are planning buffers identified to address circumstances that cannot be accurately predicted such as weather variations and unscheduled maintenance.

The IMO anticipates that the Ontario market will be effective in attracting additional resources to provide adequate reliability. However, there will likely be restrictions on planned maintenance to maintain reserve levels. Outside of these periods, available reserves are forecast to exceed requirements. Over the 18-month period under study, accounting for the availability of regional supply, the Northeast Power Coordinating Council resource adequacy criteria are met.

Figure 1 illustrates the weekly resource adequacy situation for the Ontario Electricity System for two possible resource availability scenarios: a Reference Resource Scenario, which assumes returning nuclear units and new generation resources currently under construction come into service on the date forecast by market participants, and a Delayed Resource Scenario, which assumes the same additional resources come into service one year later than forecast. Both resource projections in Figure 1 include only available generation in Ontario and external supply that is presently pre-committed to Ontario. They do not include additional resources external to Ontario that are expected to be available. Periods of high and low reserves represent opportunities for market participants to revise their operational and commercial plans.

The resource adequacy assessments take into consideration the full range of expected weather conditions on a probabilistic basis. The Ontario demand forecast is presented assuming Normal weather with the effect of deviations from Normal weather on peak demands being factored into the required reserve. As is always the case with forecasts such as these, it should be recognized that certain combinations of extreme weather and/or lower than forecast resources, could result in lower than desired levels of reliability. This resource adequacy assessment and its conclusion also assume that, after market opening, market mechanisms will result in resources being available to Ontario at a comparable level to those that are currently available.

Generally, the electricity peak demand forecast is similar to the demand forecast that was prepared for the previous 18-Month Outlook published in December 2001. The updated forecast includes actual weather, and economic and demand data up to the end of 2001. For 2002, the Normal weather summer peak is expected to be about 23,000 MW, which is about 100 MW higher than the previous Outlook. The energy demand forecast for 2002 is lower than the previous forecast due to a weaker economic outlook in 2002.

As in the previous Outlook, the transmission system is adequate to supply loads under forecast conditions studied in this Outlook, with some limits on the flexibility for planned outages in the Toronto and Windsor areas. Reactive capability of Lakeview, Pickering and Darlington units is required to maintain adequate voltage levels during summer peak demand periods.

Overall Findings and Conclusions
Periods of high and low available resources represent opportunities for market participants to revise their operational and commercial plans in a manner that would further enhance the reliability of the Ontario electricity system.

• The Loss of Load Expectation, (LOLE) is expected to be within the NPCC resource adequacy criterion.
• External resources are expected to be available to offer into the Ontario market during the periods for which negative reserve margins are forecast. During most of these periods, one or more neighbouring systems are outside their seasonal peak demand.
• Planned outage rescheduling, in addition to supply from external resources, is required to maintain adequate reserve levels during the spring of 2003.
• Sufficient control actions in the operating timeframe are expected to be available to manage a wide range of uncertainties in demand or resource levels, which might exceed the allowances covered by the Required Reserve.
• For the month of April 2002, the contracted purchase from Manitoba is expected to be maintained despite the forced outage of the Whiteshell T8 transformer that reduces the Ontario-Manitoba transfer capability and may, at times, limit dispatch flexibility in the Northwest zone.
• The planned transmission outages are not expected to significantly reduce transmission capacity during the study period.
• Avoiding planned outages and maximizing the reactive capability of the Lakeview, Pickering and Darlington units is required to maintain voltage levels above the minimum required levels in the Toronto zone during summer peak conditions.
• Restricting planned outages to transmission facilities in the Windsor area will assist in maintaining adequate voltage levels during summer peak periods.13
• Rotating reactive resources in the Thunder Bay area will continue to be required to address local voltage concerns.

Copies of the complete report can be found at www.theimo.com. ET