Docstoc

2011 Updated Business Plan and Budget Proposal

Document Sample
2011 Updated Business Plan and Budget Proposal Powered By Docstoc
					Draft

2011 Updated
Business Plan
and Budget
Proposal

Version 1
October 18, 2010
                                                2011 Updated Business Plan and Budget Proposal




Table of Contents




Our Planning Process....................................................................................................... 1
      Multi-Year Planning Process ........................................................................................ 1
      Year-Two Assessment Findings................................................................................... 2
Our Business Initiatives ................................................................................................... 3
      Market Development .................................................................................................... 3
      Electric System Development (Transmission).............................................................. 6
      Customer Access Services........................................................................................... 9
      Electric System Operations ........................................................................................ 11
      Enabling Our Core Business Areas............................................................................ 13
Our Financial Highlights................................................................................................. 15
Section I - 2010 ................................................................................................................ 16
      Costs........................................................................................................................... 16
           Capital Expenditures ......................................................................................... 17
Section II –2011 ............................................................................................................... 19
      Financial Outlook........................................................................................................ 19
      Costs........................................................................................................................... 21
           Transmission Operating Costs .......................................................................... 21
           General and Administrative Costs..................................................................... 23
           Interest Costs and Amortization ........................................................................ 26
           Capital Expenditures ......................................................................................... 27
      Revenue ..................................................................................................................... 29
Appendix A: Multi-Year Budget Process.......................................................................... 31
Appendix B: Year-To-Date August 2010 Financial Results Detail................................... 32
Appendix C: 2011 Other Industry Costs .......................................................................... 37
Appendix D: Transmission Operating Cost Definitions.................................................... 38
Appendix E: 2011 General and Administrative Cost Detail ............................................. 40
Appendix F: 2011 Staff Addition Detail ............................................................................ 44




                                                                 PAGE i
                                           2011 Updated Business Plan and Budget Proposal




Appendix G: 2011 Consulting Cost Detail........................................................................ 46
Appendix H: Capital Projects ........................................................................................... 49
Appendix I: Allocation of Costs ........................................................................................ 56




                                                           PAGE ii
                                     2011 Updated Business Plan and Budget Proposal




Our Planning Process



Our Planning Process
Multi-Year Planning Process
In January 2010, the AESO Board published their decision approving the 2010 and 2011
Business Plan and Budget Proposal (Business Plan). This Business Plan set forth the
foundation on which we intended to operate the business for 2010 and 2011, our multi-
year planning document. In the development of the Business Plan in 2009, we carried out
an in-depth review of our organization and the environment in which we operate; we
reviewed how we operate, the demands on our organization and what financial resources
are required to fulfill our mandate and achieve our strategic objectives and business
initiatives. The culmination of this work was the Business Plan.
When the multi-year planning process was established with stakeholders and our Board,
the principles for an annual review process were set (Appendix A provides additional
information). As part of this process, prior to the start of each fiscal year we would review
the established business initiatives and prepare a forecast to assess any budget changes
required to deliver these business initiatives. This process ensures that any material
change to our budget is considered as we reassess our business initiatives in year-two of
the business plan. As was acknowledged when we presented the Business Plan and
when it was subsequently approved by the AESO Board, it was understood that “AESO
Management and the AESO Board would closely monitor the demands on the resources
of the AESO [during the multi-year planning period], make adjustments as appropriate,
and obtain stakeholder input if required”1. The circumstances that would warrant intra-
process budget reviews by stakeholders and the AESO Board would be based on any
significant changes in the AESO’s Business Plan and related priorities and cost
variances.




1
    AESO Board Decision 2010 and 2011-BRP-001 issued January 2010 (page 22).




                                                     PAGE 1
                                        2011 Updated Business Plan and Budget Proposal




Year-Two Assessment Findings
Over the last several months, we have reviewed and discussed with stakeholders and the
AESO Board, the direction of our strategic plan and related business initiatives for 2011.
From this review, we have confirmed that execution of our planned direction for our
operations in the upcoming year will enable the AESO to meet its mandate2 and act in a
leadership capacity in the industry. This 2011 Updated Business Plan and Budget
Proposal (2011 Updated Business Plan) reiterates and confirms the business initiatives
that are our focus for 2011. Additional information on the business initiatives was
provided in the 2010 – 2011 Business Plan and Budget Proposal document that was
distributed as part of the Budget Review Process in September 20093 and subsequently
approved by the AESO Board.
Once the business initiatives were confirmed, we completed a detailed assessment of the
resources that are required to deliver on our commitments, reviewing human resource
needs (staff and consultants) and information technology (IT) system requirements in
addition to other ongoing administrative costs. This resource assessment was then
compared to the 2011 budget that was approved by the AESO Board in October 2010 to
determine what, if any, adjustments would be required. As will be highlighted further in
this 2011 Updated Business Plan, we are proposing adjustments to the 2011 budget as a
result of this detailed review.




2
  The Alberta Electric System Operator (AESO) is responsible for the safe, reliable and economic planning and
operation of the Alberta interconnected electric system (AIES) and the facilitation of a fair, efficient and openly
competitive electricity market.
3
 Available on the AESO website at www.aeso.ca following the path About AESO ► Our Business ► 2010 and
2011 Business Priorities and Budget.




                                                        PAGE 2
                                2011 Updated Business Plan and Budget Proposal




Our Business Initiatives



Our Business Initiatives
The AESO delivers upon its mandate through four core business areas:
    1. Market Development
    2. Electric System Development
    3. Customer Access Services
    4. Electric System Operations
Integral to supporting and developing these four major business areas are the AESO’s
people, technology and processes. These are our core assets. Our commitment to
significant investment in these assets is fundamental to achieving the short- and long-
term goals established in the AESO’s core business areas.


Market Development
The AESO is responsible for facilitating the development of Alberta’s hourly
wholesale electricity market, which has more than 200 participants and completed
over $4 billion in electricity transactions in 2009.


As Alberta’s wholesale electricity market continues to evolve, the AESO will continue to
engage stakeholders to provide input on market policy issues and advance discussions
that will guide the evolution of Alberta’s wholesale electricity market. The engagement of
our stakeholders continues to be critical in our achievement of the initiatives as outlined
in the Business Plan. The Market Advisory Group (MAC) continues to be a significant
contributor to our stakeholder process.
In general, we have been able to make significant progress in our implementation of the
Market Roadmap thus far in 2010. Significant progress on various initiatives including
wind integration, intertie framework and restoration, congestion management and
remedial action schemes (RAS), demand response, operating reserves, Section 6 Fair
Efficient Open Competition (FEOC) requirements, market suspension, supply surplus and
market performance metrics has occurred. A list of our achievements thus far in 2010 is
described in the following section.




                                                PAGE 3
                               2011 Updated Business Plan and Budget Proposal




As we progress with these initiatives over the remainder of 2010 and into 2011, there will
continue to be requirements for the development of alternatives, stakeholder
consultation, rule development, operating procedure changes and system
operator/market IT tools. As a result, there will be increased requirements on our
Regulatory, Communications, Operations and IT groups to implement the market
initiatives as they progress.
We have also made significant progress on our initiative to design and implement a
comprehensive framework for streamlining the approval process of Independent System
Operator (ISO) Rules and Alberta Reliability Standards (ARS) (collectively referred to as
our authoritative documents). We are now in the sustainment phase of this initiative as
the process changes have been implemented. We continue to convert the ISO Rules
over to the new requirements and as new rules arise, they are subject to the new
process. We believe that the objective of a streamlined process with clearly defined
participant obligations is being achieved.


Our Current Achievements in 2010
The following is a summary of the initiatives that have been advanced in 2010:

    •   A recommendation paper regarding the short-term wind integration plan was
        posted to the AESO website for stakeholder review and comment. The wind
        technical rule was filed with the Alberta Utilities Commission (Commission).

    •   A recommendation paper regarding the long-term intertie framework was posted
        to the AESO website for stakeholder review and comment. This paper included
        recommendations intended to ensure successful integration of the Montana-
        Alberta Tie Line into the Alberta Interconnected Electric System (AIES).

    •   A recommendation paper regarding the restoration of interties was posted for
        review and comment. Implementation of the import intertie restoration product
        (LSSi) is on track for an April 2011 implementation.

    •   A supply surplus discussion paper was posted to the AESO website for
        stakeholder review and comment. It proposed a short-term solution and initiates
        discussion on the long-term options for supply surplus.

    •   A discussion paper on the market suspension rule outlining possible options was
        issued for comment.

    •   Phase 1 implementation of the Operating Reserve Market Re-design
        recommendation paper was completed. The majority of AESO operating reserve
        procurement was shifted from Day-5 to Day-1.

    •   A recommendation paper outlining the proposed FEOC market share offer
        control implementation was issued.

    •   Responses to stakeholder comments regarding the transmission congestion
        management (TCM) rule re-filing and the transmission RAS business practice
        discussion paper have been posted to the AESO website. The TCM rule is the
        subject of a Commission decision.


                                               PAGE 4
                                 2011 Updated Business Plan and Budget Proposal




For the remainder of 2010, we will continue to focus on the market initiatives which are
currently in progress. Additional information on the status of AESO’s market initiatives
can be found by visiting the MARKET tab on the AESO website.


Our Plan for 2011
In 2011, the AESO will continue to advance its initiatives as outlined in the Business Plan
to further evolve Alberta’s wholesale electricity market and contribute to achieving the
strategic objective related to the energy-only market (Strategic Objective 1: We will
design and operate a competitive, energy only electricity market where evolution is driven
by participants and the AESO). We will continue to consult with our stakeholders on the
progress of our initiatives in support of a fair, efficient and openly competitive electricity
market.
Our key initiatives include:
    •   Implement the Market Roadmap;
    •   Facilitate integration of wind generation;
    •   Facilitate development and restoration of interties; and

    •   Continue to execute the transition of authoritative documents project.




                                                 PAGE 5
                                       2011 Updated Business Plan and Budget Proposal




Electric System Development (Transmission)
The AESO is responsible for assessing the current and future needs of market
participants and planning the transmission system to meet those needs. We utilize
a system planning process to proactively identify projects, achieve regulatory
approval and initiate development in coordination with Transmission Facility
Owners (TFOs). Our objective is to ensure transmission facilities are in place to
maintain a reliable and economic transmission system that facilitates operation of
competitive electricity markets.


As indicted in our 2010 and 2011 Business Plan and Budget, the transmission system is
a highway for the province’s electricity industry. The transmission system must be
capable of delivering electricity when and where it is needed, while power generators
must be confident that they are able to connect to the grid accommodating new
investment in generation. The existing transmission system is congested, aging, and
results in significant wasted electricity as a result of large system losses. We continue to
believe that now is the time to close the gap between the currently stretched system and
one that is able to meet the current and future needs of the province.
We continue to make progress on the transmission projects outlined in our Long-term
Transmission System Plan (LTSP). In accordance with the Transmission Regulation (T-
Reg), the updated LTSP will be issued on or before June 1, 2011. It is imperative that we
continue to make progress on the critical transmission infrastructure (CTI)4 projects as
well as various regional transmission projects. The regional transmission projects must
be implemented to meet market participant needs as required. As the province has been
a net importer of electricity since 2002, the AESO also continues to focus some of its
transmission planning activities on interties (transmission lines that connect Alberta with
neighboring jurisdictions).
In addition, the T-Reg describes the roles, responsibilities and key requirements of a
competitive procurement process for CTI. Pursuant to this requirement, we are
developing a competitive procurement process that will apply to the Fort McMurray CTI
project and future CTI projects. We have initiated stakeholder consultation on this
requirement and will continue to do so as the process is developed over the remainder of
2010 and into 2011.
The T-Reg has also formalized the Transmission Facilities Cost Monitoring Committee
which is created under the Ministerial Order 64/2010 to provide consumers with
increased transparency and the ability to monitor costs of large projects prior to the
TFO’s rate hearings. The Ministerial Order describes the roles and responsibilities of the


4
  In 2009, the AESO released its Long-term Transmission System Plan, which outlines the following four critical
transmission infrastructure (CTI) tier 1 projects:
      1. Two 500 kilovolt (kV) high voltage direct current (HVDC) high capacity lines from the Edmonton area
          to the Calgary and South regions.
      2. One 500 kV double circuit alternating current line from the Edmonton area to the Industrial Heartland
          area (parts of Sturgeon, Strathcona and Lamont counties).
      3. Two 500 kV lines to Fort McMurray—one from the Wabamun Lake area and one from the Industrial
          Heartland area northeast of Edmonton.
      4. A 240 kV substation in the south Calgary area.


                                                       PAGE 6
                               2011 Updated Business Plan and Budget Proposal




13 consumer and business groups and the AESO that form the Committee. The AESO
will facilitate the provision of records to the Committee, which includes, as a minimum,
the monthly project reports and quarterly cost reports.
As we continue to progress with the implementation of the LTSP, there will be a heavy
reliance on AESO resources. A large number of transmission need applications will be
developed and filed with the Commission in 2011, requiring support from various
business groups including Regulatory and Legal (application preparation, filing and
hearing support), Communications (stakeholder consultation), Operations (operating
policies and procedures) and IT (project management and system operator tools).


Our Current Achievements in 2010
The following is a summary of the initiatives that have been advanced in 2010:

    •   The Commission has approved the AESO’s Needs Identification Document (NID)
        for transmission development in the North Central region. This covers 31,000
        square kilometres, including the towns of Slave Lake, High Prairie, Valleyview,
        Swan Hills and Whitecourt.

    •   The Commission has approved the AESO’s NID for transmission development in
        the Hanna region, which supports additional wind generation and a significant
        increase in pipeline load. The AESO has been coordinating the filing of 24
        Facility Applications (FA) by the TFOs. These FAs will be filed during the fourth
        quarter of 2010 and the first quarter of 2011.

    •   The AESO submitted a NID for transmission reinforcement in Central East
        Alberta in May. The hearing for the NID application is scheduled for November
        2010 with the forecast for Commission approval in the spring of 2011. This will be
        followed up with the filing of FAs in the third quarter of 2011.

    •   The Commission has approved the AESO’s NID for transmission development in
        the Yellowhead region which replaces aging infrastructure and addresses
        escalating maintenance capital expenditures in the region. All FAs for the project
        have been filed with the Commission for approval.

    •   The CTI projects continue to advance. The FA for the Heartland transmission
        development project was filed with the Commission in September and we
        anticipate that the FA for the south Calgary 240 kV substation will be filed before
        year-end. The FAs for the east and west 500 kV HVDC lines will be filed in 2011.

    •   The AESO has reviewed 57 proposal to provide service (PPS) documents
        submitted by the TFOs. The PPSs must be accepted by the AESO before the
        TFO can file a project FA.
The AESO has a number of very significant transmission system reinforcements currently
underway (including projects approved, pending approval and under construction)
throughout the province. For the remainder of 2010, we will continue to focus on the
implementation of our Long-term Transmission System Plan.




                                               PAGE 7
                                2011 Updated Business Plan and Budget Proposal




Our Plan for 2011
In 2011, we will continue to advance its initiatives as outlined in the Business Plan to
further evolve the AIES and contribute to the achievement of the AESO’s strategic
objective related to development of an unconstrained transmission system (Strategic
Objective 2: We will lead development of a reliable transmission system, including
interties with other jurisdictions, that fully enables operations of the competitive market).
Our key initiatives include:

   •   Implement the AESO’s Long-term Transmission System Plan;

   •   Advance the development of CTI, regional and customer connection projects;

   •   Review and streamline the end-to-end transmission development process for
       system and customer connection projects; and,

   •   Update the AESO’s Long-term Transmission System Plan and file with the
       Commission.




                                                PAGE 8
                               2011 Updated Business Plan and Budget Proposal




Customer Access Services
We are responsible for providing customers with transmission system access to
the Alberta power grid and access to the wholesale electricity market.


The AESO provides customers (i.e. generators and large commercial and industrial end-
users) with access to the AIES. The AESO will continue to focus on implementation of
the redesigned customer connection process and on the execution of the large number of
connection projects in the queue.
In April 2010, we implemented a new customer connection process with the objective of
having a more effective and efficient process to connect market participants to the grid.
The number of connection applications slowed in 2009 due to the economic downturn.
However, prior to 2009, the AESO received system access requests at an unprecedented
rate resulting in a backlog of applications. Some the projects which were delayed or
deferred as a result of the economic downturn have now resumed and applications for
new projects are also being received. In addition, a number of the new connection
applications are quite complex in nature. The AESO currently has over 200 active
customer connection projects.
Currently, we expect to file 45 customer connection NIDs with the Commission in 2010
which is a significant increase over 2009 (2009 – 19 NIDs, forecast 2011 - 61 NIDs).
Similar to system projects, the increase in the number of customer connection projects
will impact workload beyond the Transmission department. The increased volume of
applications will increase workload in the Regulatory group where the applications are
prepared and assembled for filing, in the Communication department which is
responsible for stakeholder consultation, and in Operations where the operating policies
and procedures are developed and/or revised. In addition, IT tools may be required to
support these projects. In addition, the AESO continues to focus on its project
management capabilities and disciplines. Additional project management resources will
be required to manage the high volume of customer connection requests.


Our Achievements thus far in 2010
The following is a summary of the initiatives that have been advanced in 2010:

    •   We have assembled AESO project delivery groups which are aligned
        geographically into North and South teams. These teams are responsible for
        both system development and customer connection projects.

    •   Following more than a year of stakeholder consultation, the AESO prepared and
        filed a 2010 General Tariff Application with the Commission. It reflects the new
        customer connection process as well as other updates. We expect to receive
        approval by the end of the year.

    •   We are reviewing, updating and creating transmission related authoritative
        documents, including AESO Rule 9.1 (project reporting and procurement), to
        simplify and clarify the transmission delivery processes and ensure all parties


                                               PAGE 9
                                    2011 Updated Business Plan and Budget Proposal




         have clearly defined responsibilities and the visibility of information required to
         better manage transmission projects.
We will work with TFOs and customers to test and monitor the customer connection
process and will conduct a process review in the latter part of 2010.
Additional information is available on the CUSTOMER CONNECTIONS tab on the AESO
website.


Our Plan for 2011
In 2011, we will continue to advance its initiatives as outlined in the Business Plan to
further improve access to the transmission system and wholesale electricity market in
support of the strategic objective related to provision of system and market access
services (Strategic Objective 3: We will consistently meet or exceed customer
expectations in the delivery of system and market access services). We will continue to
focus on customer service access improvements and our efforts will be informed by
stakeholder feedback solicited in late 2010. The AESO has also developed performance
metrics for the customer connection process. With the project management tool5 in place,
we will employ these metrics to further the continuous improvement process that started
in 2010.




5
  The AESO has implemented the project management tool (@task) during the third quarter of 2010. The full
implementation of the tool will be in place following completion of the required training by the project
management staff in the latter part of 2010.


                                                    PAGE 10
                               2011 Updated Business Plan and Budget Proposal




Electric System Operations
The AESO is responsible for directing the safe, reliable and economic operation of
the AIES and operation of the wholesale electricity market in a fair, efficient and
openly competitive manner.


The AESO’s system coordination centre (SCC) is the heart of its 24/7 operation and
facilitates our mandate to keep the competitive market functioning and the lights on in
Alberta. Operating a strained, aging and congested transmission system becomes more
challenging every year.
The AESO’s system controllers have a long and successful track record in operating
power systems that includes more than 200 person-years of combined experience. They
are responsible for the real-time operations of the Alberta electric system. Our system
controllers match supply and demand every minute of every day to ensure power is
available when Albertans need it. They also monitor and direct the operation of the
provincial power grid to ensure safe, reliable and economic power for all Albertans.
The individuals who work in our SCC have a specialized skill set. The market and
transmission initiatives that are undertaken within the AESO and the broader industry
require integration into the existing systems and procedures being utilized within the
SCC. Our SCC personal are experienced at receiving and integrating these changes into
a 24/7 environment without jeopardizing the safe, efficient and reliable operation of the
AIES. Our SCC personnel rely on training, technology and procedures to make this
happen. As a result, we continue to make significant capital investments in our
technologies and investments in our people as we need to have the capabilities to
operate the transmission system and the wholesale market in a reliable and efficient
manner. Adequate resources are required within Operations to ensure that the multiple
new initiatives within Markets and Transmission can be efficiently integrated and
operationalized within the real-time environment in 2011.
In addition, we have agreed to operate the AIES and competitive market, to the extent
possible, in accordance with the North American Electric Reliability Corporation (NERC)
and Western Electricity Coordinating Council (WECC) Reliability criteria and standards.
We continue to make progress implementing our standards, which are referred to as
Alberta Reliability Standards.


Our Current Achievements in 2010
The following is a summary of the initiatives that have been advanced in 2010:
   Alberta Reliability Standards (ARS)

    •   To date, five standards have been filed with the Commission for approval and 26
        standards are currently in various stages of consultation with stakeholders. The
        consultation will take place over the coming months in an effort to prepare for a
        number of standards to be filed with the Commission prior to year-end, with the
        majority completed in the new year.



                                               PAGE 11
                              2011 Updated Business Plan and Budget Proposal




   •   Stakeholder compliance monitoring activities by the AESO have been initiated
       and are progressing on schedule. The self-certification cycle has also
       commenced and self-certifications have been submitted by market participants
       for assessment by the AESO.

   •   Stakeholder ARS education activities are ongoing. A compliance workshop was
       held in May and broad industry consultation is continuing.

   •   The AESO self-certified to WECC as to compliance with three standards (as of
       June 30, 2010) in July 2010.
   Fourth System Controllers Desk

   •   The recruitment for the positions approved for 2010 for the fourth system
       controller desk are underway.

   •   The real-time operations planning capabilities (advanced applications) of the
       newly replaced Energy Management System (EMS) are being utilized delivering
       increased system visibility and maximizing transmission capabilities under
       congested environments.

   •   The AESO held its annual AIES power system restoration training drills in
       Calgary and Nisku. Over 200 participants attended including transmission facility
       owners, generation facility owners, distribution facility owners and AESO system
       controllers.
For the remainder of 2010, we will continue to focus on implementing the Alberta
Reliability Standards and operationalizing the fourth system controller desk.
Our Plan for 2011
In 2011, we will continue to advance its initiatives as outlined in the Business Plan to
further improve our ability to operate the AIES and wholesale electricity market. This
includes the continued effective implementation of ARS and the addition of a fourth
system controller desk (including continued expansion and enhancement of EMS to add
additional functionality).




                                              PAGE 12
                                2011 Updated Business Plan and Budget Proposal




Enabling Our Core Business Areas
Integral to achieving the objectives related to our core business areas are the AESO’s
people, technology and processes—core assets in which we must continue to advance
and invest in.
Our people continue to be our most important asset. Our people continue to drive our
business as we continue to look at ways to operate more effectively and efficiently.
Without our people we would not be able to succeed in such a demanding environment.
Our technology continues to be a key enabler to our business. We must continue to
ensure that we are capable of proactively implementing new supply and demand
technologies to support market and grid operations and providing effective access to data
and information for market participants. We must utilize scalable, robust and secure IT
systems to achieve operational excellence and we invest in our underlying IT
infrastructure to ensure this. We also make significant capital investments in our business
systems to support the growth and evolution of our market, transmission and operations.
We also must continue to look forward. We must appreciate that technology extends
beyond information systems to various forms of technology such as integrating wind
power, HVDC, Smart Grid, and advanced metering infrastructure. We need to support
and enable emerging technologies that the AESO and its customers may use.
Our stakeholder consultation and outreach programs continue to be an important
aspect of what we do. To successfully execute our mandate, we must continue to engage
and collaborate with our stakeholders, customers and the public. Stakeholder
consultation with the general public, including elected officials, special interest groups
and others provides us with a broad perspective as well as input into the plans we
develop.
In addition, we continue to expand our public outreach program. Through this program,
we try to give Albertans factual and unbiased information about the electric industry
including how it works and who the players are. Our goal is to help Albertans better
understand how important electricity is to our quality of life, the competitiveness of our
provincial business and industry climate, and our overall economic future.


Our Current Achievements in 2010
The following is a summary of the initiatives that have been focused on in 2010:

    •   Our resource plan strategy for 2010-2012 has been developed and is under
        review. Succession planning activities for executive and management positions is
        underway and our performance management program has been streamlined.

    •   We continue to execute our 2010 capital plan as outlined in our Business Plan.
        We have implemented a portfolio review process that enables business priorities
        to be reviewed and adjusted on a regular basis and provides transparency on
        project status.

    •   The AESO is developing an enterprise architecture strategy that aligns with the
        advancement of AESO’s business strategies and initiatives.



                                                PAGE 13
                                2011 Updated Business Plan and Budget Proposal




    •   The real-time operations planning capabilities (advanced applications) of the
        replacement Energy Management System (EMS) are being utilized. A key
        example was the use of its advanced planning features to minimize market
        impacts during the spring storm period.

    •   The Powering Albertans magazine was distributed to 1.3 million Albertans in the
        second quarter of 2010.


Our Plan for 2011
AESO staff and technology drive a significant portion of our business activities and
related expenditures. As such, we are focused on efficiency improvements across our
core assets (people, technology and processes) that will improve our overall
effectiveness.
In 2011, the AESO will continue to advance its initiatives as outlined in the Business Plan
to:
    1. Continue to refine our comprehensive resource strategy to attract, engage and
       retain quality staff.
    2. Continue to focus on becoming a technology knowledge leader by enhancing our
       internal capability to evaluate, deploy and transfer emerging technology.
    3. Continue to execute on the AESO’s public outreach plan.
    4. Continue to enhance relationships with stakeholders.




                                                PAGE 14
                              2011 Updated Business Plan and Budget Proposal




Our Financial Highlights




Our Financial Highlights
As part of this 2011 Updated Business Plan, we are presenting the adjusted 2011
budget. The process for developing the budget included detailed discussions and reviews
with all levels of management to assess the planned work on the 2011 business
initiatives. Based on these reviews, we then compiled our resource requirements. This
process ensured a consistent approach was used and that any gaps and overlaps in
work efforts were identified and addressed while aligning to the overall corporate
direction. This process ensures that we have sufficient resources (human and financial)
available to deliver on our business initiatives.
The financial information is presented in two sections: Section I reviews the 2010
financial results and Section II provides budget information for 2011. Additional
information is included in Appendices B to I.




                                              PAGE 15
                                   2011 Updated Business Plan and Budget Proposal




Section I - 2010
Costs
The following chart provides a summary of the AESO’s costs as of August 2010
compared to the budget.
Year-to-Date August 2010 Costs           ($ million) ~ by production year
                                     YTD August              YTD August             YTD August        2010
                                          Actual               Forecast               Variance    Forecast
Wire Costs                                     428.6                  358.4               70.2       537.5
Transmission Line Losses                        93.2                  102.5               (9.3)      173.6
Operating Reserves                              95.7                   55.3               40.4       112.5
Transmission Must-Run                           16.4                   15.2                1.2        22.3
Other Ancillary Service Costs                    5.8                    6.3               (0.5)        9.5
Other Industry Costs                            14.4                   14.6               (0.2)       21.9
General and Administrative Costs                47.1                   50.0               (2.8)       75.2
Interest                                         1.6                    1.3                0.2         2.0
Amortization of Capital Assets                   7.2                   11.8               (4.6)       17.7
Differences are due to rounding.


The following are descriptions of the notable variances in the year-to-date results.
Wire Costs
Wire costs as of August 2010 are $428.6 million compared to the AESO forecast of
$358.4 million, an increase of $70.2 million or 20 per cent based on the amounts paid
primarily to the owners of transmission facilities in accordance with their Commission-
approved tariffs.
Operating Reserves
Operating reserve costs in 2010 have been $40.4 million or 73 per cent higher than
forecast. This variance is due to significantly higher than forecast pool prices during May
and June as a result of planned and unplanned transmission outages and constraints
associated with severe spring storms. As operating reserve costs are indexed to the
hourly pool price, higher than forecast pool prices result in higher than forecast operating
reserve costs. Actual operating reserve volumes to the end of August were 5,268
gigawatt hours compared to forecast volumes of 5,524 gigawatt hours, a variance of 256
gigawatt hours or five per cent.
Amortization of Capital Assets
Key variables in developing the annual amortization budget are the type (impacting the
number of years for the amortization period), amount and timing (commission date) of
asset additions. For 2010, it has been concluded that the assumptions used for the type
and timing of the asset additions were significantly different than what has actually
occurred to date.
Additional detailed information on the year-to-date August 2010 costs is included in
Appendix B.



                                                   PAGE 16
                                        2011 Updated Business Plan and Budget Proposal




Capital Expenditures
For 2010, we are anticipating capital expenditures of $22.6 million, which is slightly less
than the amended capital budget of $24.5 million6. The following table provides a
summary of current capital projects.


Capital Expenditures ($ million)
                                                                  YTD August                  2010           2010
                                                                       Actual            Remaining        Estimate
Key Capital Initiatives
  1. Energy Management System7                                                   -             1.4               1.4
  2. Wind Integration                                                          0.5             1.8               2.3
  3. FEOC* Regulation Implementation                                             -             0.1               0.1
  4. Congestion Management                                                       -               -                 -
  5. Intertie Framework/Demand Response                                          -             1.5               1.5
  6. Dispatch Tool - Upgrade                                                   3.4               -               3.4
  7. Transmission and Market Modelling                                           -               -                 -
  8. Information Management Platform                                           0.5             0.4               0.9
  9. 2010 General Tariff Application                                           0.1               -               0.1
  10. Alberta Reliability Standards                                              -               -                 -
  11. SCC** Expansion                                                            -               -                 -
  Total Key Capital Initiatives                                                4.5             5.2               9.7
Other Capital Initiatives                                                      4.5             1.8               6.3
Life Cycle Funding                                                             3.2             3.4               6.6
Total Capital Spending                                                       12.2             10.4             22.6

*Fair Efficient Open Competition
** System Coordination Centre


Differences are due to rounding.



Key capital initiatives represent the most critical capital projects over the planning
period that the AESO believes must be completed within the identified timeframe.




6
  The 2010 Plan reflects the June 2010 AESO Board decision to reduce the general capital budget by $2.1
million related to costs incurred for the validation phase of capital projects (transferred to the general and
administrative budget). Also included in this Board decision is a general capital reduction of $2.8 million related
to improved project execution and the deferral of previously planned projects. Subsequent to these
amendments, the approved 2010 general capital budget became $24.5 million.
7
  General capital expenditures on the Energy Management System will occur for all costs greater than the
original AESO Board approved budget of $20.7 million. The current project costs are estimated to exceed the
budget by $1.4 million.



                                                        PAGE 17
                                2011 Updated Business Plan and Budget Proposal




Other capital initiatives are also necessary projects; however, they have more flexibility
in planning or delivery so timing is not as critical or they are lower priority than the key
capital initiatives.
Life cycle initiatives are typically replacement of end-of-life hardware and recurring
software upgrades.


Additional detailed information on capital projects is provided in Appendix H.




                                                PAGE 18
                                 2011 Updated Business Plan and Budget Proposal




Section II –2011
Financial Outlook
In planning for 2011, we reviewed three distinct cost categories for review with
stakeholders and the AESO Board. These cost categories are the following:
    •   Transmission Operating Costs (i.e. wires, transmission losses, ancillary services)
    •   General and Administrative and Interest Costs and Amortization
    •   Capital Expenditures
For transmission operating costs, the previously described two-year budget approval
process does not apply. Due to the significance of the costs and the difficulty forecasting
pool price which is a key variable in determining certain transmission operating costs, on
an annual basis we prepare a one-year forecast for review and AESO Board approval. As
such, the 2011 forecast for transmission operating costs is the first time this information is
being presented.
For the remaining two cost categories, the 2011 budgets were reviewed and approved
during the two-year budget process that occurred in the latter part of 2009. While there
are no significant amendments to our 2011 business initiatives, we have used the
experiences that we have gained over the last twelve months and our current knowledge
to reassess the resources required to successfully deliver these business initiatives. The
focus of the following section is to highlight the adjustments that are required to the 2011
approved budget. Given this, this 2011 Updated Business Plan should be read in
conjunction with the 2010 – 2011 Business Plan and Budget Proposal document that was
distributed as part of the Budget Review Process in September 20093 and subsequently
approved by the AESO Board.
The results of the detailed review relating to the general and administrative budget have
shown that an additional $10.4 million or 14 per cent increase is required from the
previously approved $75.1 million budget for an adjusted budget of $85.5 million for
2011.


        ($ million)
        2011 Approved Budget                                                            75.1
             Staff Additions (9 positions and 1% salary adj ↑)                           1.7
             Consulting:
                 Technical Support                                                2.4
                 Capital Project Validation Costs                                 2.1
                 IT Application System Maintenance                                1.1    5.6
             IT Maintenance Agreements and Licences                                      1.0
             IT Managed Services                                                         2.0
             Various Smaller Adjustments                                                 0.1
        2011 Adjusted Budget (Proposed)                                                 85.5




                                                 PAGE 19
                               2011 Updated Business Plan and Budget Proposal




This increase for 2011 is mainly attributable to the additional resource requirements
identified for the following areas:
   •   We need additional staff and consulting resources to manage the workload
       related to customer and system connections. It’s critical that we have sufficient
       resources in place for the successful completion of the projects and to meet
       targeted in-service date. As we identified in discussing the 2010 business
       initiatives, we have experienced significant growth in the number of connection
       applications that need to be managed and we anticipate this workload to be
       sustained for a number of years.

   •   With the number of market initiatives currently being researched, reviewed or
       implemented, we require additional resources to ensure this work can progress
       within the timeline expected by industry. Our resources focus on the
       development of alternatives, conducting stakeholder consultation, developing
       rule and operating procedure changes and working on the design and
       development of enhanced and new grid and market operating systems. In
       addition, we plan to focus our efforts in 2011 on enhancing the generation and
       load forecasting capabilities within the AESO which will provide more robust
       information in areas such as market studies and the Long-term Transmission
       System Plan.
   •   The reliability and effectiveness of the AESO’s IT business systems are critical to
       our success. We operate in a demanding environment for both the ongoing
       operations of the grid and market systems (our 24/7 capabilities) and our ability
       to design and adapt these systems to implement ongoing changes (i.e. rule
       changes). In addition to this, our business operations continue to grow each year;
       we have never experienced a period where our business changes have leveled
       off, the business requirements for change continue year-over-year. To support
       our IT infrastructure and development, we have identified additional resources
       required to implement a new IT strategy for the sustainability of our infrastructure
       support and for the ongoing maintenance support for our IT platforms.

   •   With respect to capital expenditures, an annual budget of $29.0 million was
       approved for 2011. Again, we have taken into consideration the experiences
       gained in 2010, our business capacity to design and implement system solutions
       and what our capital requirements will be for 2011. In addition to this, we have
       factored in the impact that the change we made in 2010 to advance some of the
       stages of project planning and execution which moved a portion of the capital
       budget into the general and administrative cost category. After taking all of this
       into account, we will reduce the 2011 capital budget by $2.0 million or seven per
       cent to $27.0 million.
The only remaining cost category for AESO costs is Other Industry Costs which were
approved as part of the two-year budget for 2011 and have been assessed to require no
adjustments. Additional information on the 2011 Other Industry Costs is provided in
Appendix C.




                                               PAGE 20
                                          2011 Updated Business Plan and Budget Proposal




Costs
Transmission Operating Costs
The following chart provides the summary of transmission operating costs. Additional
information on the 2011 forecast methodology and descriptions of the cost categories is
provided in Appendix D.


              1,200

               900
 $ Millions




               600

               300

                 0
                         2011 Plan           2010 Forecast                 2009 Actual              2008 Actual

                  Wire Costs                      Transmission Line Losses                 Operating Reserves
                  Transmission Must Run           Other Ancillary Service Costs




Transmission Operating Costs                  ($ million) ~ by production year

                                                                        2011            2010         2009          2008
                                                                        Plan        Forecast        Actual        Actual
Wire Costs                                                             728.0               537.5      579.8        504.1
Transmission Line Losses                                               121.0               173.6      122.4        236.0
Operating Reserves                                                      60.0               112.5      101.9        262.2
Transmission Must-Run                                                   23.9                22.3       26.4         43.3
Other Ancillary Service Costs                                            7.8                 9.5        6.4          8.0
Transmission Operating Costs                                           940.7               855.4      836.9     1,053.6

Differences are due to rounding.



Wires
Wires costs represent the amounts paid primarily to owners of transmission facilities
(TFOs) in accordance with their Commission-approved tariffs and are not controllable
costs of the AESO. For 2011, we are forecasting wires costs of $728.0 million based on
the current applied-for or Commission-approved TFO costs (totaling $721.3 million) and
the AESO’s forecast for other included costs (totaling $6.7 million). This forecast
represents an increase of $190.5 million or 35 per cent compared to the 2010 forecast of
$537.5 million. The AESO notes that the 2010 wires costs forecast was updated to
$648.4 million to include additional amounts approved in Commission decisions prior to
the AESO filing its 2010 tariff application earlier this year.




                                                          PAGE 21
                                2011 Updated Business Plan and Budget Proposal




Transmission Line Losses
Transmission line loss costs are the cost of energy that is ‘lost’ as a result of electrical
resistance on the transmission lines. Our forecast for the 2011 transmission line loss
costs is $121.0 million based on 2.56 terawatt hours of energy and the July 12, 2010
EDC hourly pool price forecast (annual 2011 average pool price of $47 per MWh). This
forecast represents a $52.6 million or 30 per cent decrease from the 2010 forecast of
$173.6 million which was based on 2.64 terawatt hours of energy with the annual 2010
average pool price of $64 per MWh. While the forecasted volumes have decreased by
approximately three per cent in 2011 (2.64 to 2.56 terawatt hours), the reduction to costs
is primarily attributed to the lower pool price forecast.
Operating Reserves
The AESO purchases operating reserves from the ancillary services exchange and
through over-the-counter contracts with suppliers. Operating reserves are generating
capacity or load that is held in reserve and made available to the system controller to
manage the transmission system supply-demand balance in real-time. Operating reserve
prices are indexed to the hourly pool price and the AESO’s forecast for operating reserve
costs is based on the 2011 forecasted pool prices.
In 2011, we are forecasting that operating reserve costs will decrease to $60 million
which is a $52.5 million or a 47 percent decrease from the 2010 forecast. While the
forecast operating reserve volumes for 2011 are similar to the 2010 forecast, the
decrease in the forecast hourly pool price for 2011 is the primary reason for the forecast
cost decrease over 2010.
Transmission Must-Run
Transmission must-run (TMR) is generation required to be on-line and operating to
ensure reliability in specific areas of the AIES with insufficient transmission capacity.
In 2011, we are forecasting TMR costs to be $23.9 million which is a $1.6 million or a 7
percent decrease from the 2010 forecast. Forecast TMR costs for 2011 are slightly higher
than those for 2010 due to the decrease in the forecast hourly pool price for 2011 over
2010.
Other Ancillary Services
Other ancillary services include the remaining services that the AESO procures for the
secure and reliable operation of the AIES such as load shed services and black start
services. Forecast costs for these services are $7.8 million which is 1.7 million or 18
percent lower than the 2010 forecast due to a delay in finalizing a new contract with a
service provider.




                                                PAGE 22
                                        2011 Updated Business Plan and Budget Proposal




General and Administrative Costs




                  90



                  60
    $ Millions




                  30



                   0
                       2011 Revised   2011 Budget         2010 Budget           2009 Actual     2008 Actual


                 Staff Costs                                                Contract Services & Consultants
                 Administration                                             Facilities
                 Computer Services and Maintenance                          Telecommunications



General and Administrative Costs ($ million)
                                                          2011           2011   2010             2009          2008
                                                      Adjusted           Plan Budget8           Actual        Actual
Staff Costs                                                   48.4        46.4           44.4     41.6          37.4
Contract Services & Consultants                               16.6        11.7           14.5     14.3          11.8
Administration                                                 7.2         7.1            7.0      6.9           6.5
Facilities                                                     4.8         4.7            4.7      3.6           3.1
Computer Services and Maintenance                              6.9         3.8            3.3      3.5           2.6
Telecommunications                                             1.5         1.4            1.3      1.3           1.3
General and Administrative Costs                              85.5        75.1           75.2     71.1          62.7

Differences are due to rounding.

Additional information on general and administrative costs is provided in Appendices E
through G.




8
   The 2010 Budget reflects the June AESO Board decision to increase G&A costs by $2.1 million related to
costs incurred for the validation phase of capital projects (transferred from the general capital budget).




                                                        PAGE 23
                                              2011 Updated Business Plan and Budget Proposal




Staff Costs
In the demanding environment that we operate in, it is through the effort and commitment
of our staff that we are able manage and deliver on the many initiatives before us on an
ongoing basis. It is through our management of the staff that we strive to operate more
effectively and efficiently.
For 2011, we identified that our approved staff complement of 344 people was not
sufficient. After much discussion and review of the number of new resources that can
effectively be integrated into the organization in a year, the adjusted staff budget for 2011
reflects 19 new staff positions; an increase from the 10 approved staff additions for 2011.
The primary focus for the additional resources will be on transmission related functions
relating to the number of connection projects and the related impact on regulatory filings
for Need Identification Documents. Information on the proposed new 2011 staff positions
is provided in Appendix F.
The following chart outlines the AESO’s permanent staff complement:



                          400
                                                                                      334        344     353
                          350                                              319
        Number of Staff




                                                              292
                          300                     266
                                227    243
                          250

                          200

                          150
                                2005   2006       2007        2008       2009        2010       2011     2011
                                                                                               Budget   Update




Contract Services & Consultants
In preparing the 2011 budget last fall, we committed to reducing the use of external
consultants and contractors; while that goal remains, the adjusted 2011 budget reflects
an increase to this cost category. While cost reductions have occurred in several areas of
consulting costs (i.e. peak workload, co-sourcing IT support), there are three areas that
will incur higher costs. Appendix G provides summary information on the 2011 consulting
initiatives.

•   Technical Support – To support initiatives such as the development of the
    competitive procurement process and various market design plans, specialized
    technical resources are required to supplement our staff resources. For IT, technical
    resources are required to address one-time initiatives to facilitate future efficiencies
    through enhanced processes and application/data management.

•   IT Application System Maintenance – Resources are required to provide ongoing
    maintenance of existing systems to ensure these systems continue to provide
    reliable and accurate functionality (non-capital costs). Cost incurred for this type of



                                                              PAGE 24
                                2011 Updated Business Plan and Budget Proposal




    work have occurred in previous years but have been shown to be increasing with the
    number and complexity of the AESO applications which has prompted separate
    disclosure in the budget.

•   Capital Project Validation Costs – To improve the analysis that enables earlier
    capital project selection (validation) and improved project execution, we have
    advanced some of the stages of the project planning and execution (e.g. scoping of
    business requirements, alternative solutions, cost estimates and detailed
    implementation/integration plans). These changes have resulted in costs previously
    considered capital expenditures to become general and administrative costs; these
    do not represent new costs to the AESO. These costs are consistent with the 2010
    budget amendment that was approved by the AESO Board in June 2010 for this
    purpose.
Computer Services and Maintenance
As the AESO invests in IT infrastructure and applications to support the organization’s
business operations, ongoing costs are incurred to purchase annual software operating
licences and maintenance agreements for these systems with high availability
requirements that are supported by premium class maintenance and support
agreements.
Originally, we anticipated computer services and maintenance costs in 2011 to be $3.8
million which was $0.5 million higher than the 2010 budget of $3.3 million. However, for
2010, we are anticipating our annual costs to be $3.8 million due to additional
maintenance and support agreements required to support our systems due to new
applications and user growth. Our current and historical experience shows annual growth
in IT infrastructure and applications (additions exceeding retirements), and as such, it has
been determined that an additional $1.0 million of costs will be incurred in 2011 above
the existing 2011 budget and the anticipated 2010 actual costs.
In 2011, we have also investigated a new strategy for the IT infrastructure support; the
transition to a managed services model for IT infrastructure operating support (network,
server, database and storage). A managed service arrangement is where the AESO
would transfer the day-to-day management and operations of a support function (not the
strategic management) to a third party provider.
Our strategy with this new support approach would be to leverage available technical
resources and tools to provide more effective support for our critical processes. Our
assessment shows that we need to either increase our internal resources or to implement
a managed services model. While our infrastructure management is key to our business
success, it is not our core business and we want to ensure we do not expend resources
building this expertise. The managed services approach is an existing and well
established approach in industry to achieve resource efficiencies and improve reliability.
The 2011 adjusted budget includes $2.0 million in costs for the transition in 2011 which
inevitably incorporates some duplication of resources through the transition period.




                                                PAGE 25
                                 2011 Updated Business Plan and Budget Proposal




Interest Costs and Amortization
Interest Costs and Amortization ($ million)
                                                   2011           2011   2010             2009     2008
                                               Adjusted           Plan Budget8           Actual   Actual
Interest                                                2.6         2.6            2.0      1.3      1.4
Amortization of Capital Assets                         17.1        23.2           17.7      9.6      7.8


Interest
Interest expense is incurred as a result of bank debt held throughout the year and the
associated borrowing rate. No adjustments are required to the 2011 budget.
Amortization of Capital Assets
Capital assets are amortized over their estimated useful lives in accordance with
generally accepted accounting principles and reviewed on an annual basis. Based on the
information available since the 2011 budget was first prepared in mid-2009 (i.e. the types,
amount and timing of the capital expenditures that have occurred) and a current estimate
for the expenditures for the remainder of 2010 and 2011, an adjusted budget amount for
amortization has been determined. Additional information on the capital projects is
provided in Appendix H.




                                                 PAGE 26
                                 2011 Updated Business Plan and Budget Proposal




Capital Expenditures
A detailed review of the capital expenditures for 2011 recently occurred taking into
consideration the progress we have made on our 2010 initiated projects, our capacity to
design and implement system solutions with available resources and what our
requirements will be for 2011. Based on these findings, we have adjusted our 2011
capital expenditure budget to $27.0 million from the 2011 approved budget of $29.0
million.
The AESO’s capital portfolio management process facilitates a regular review and
prioritization of capital projects to ensure we meet business requirements and, at the
same time, achieve the most beneficial and cost-effective results. With this capital
portfolio management process in place and our need for flexibility to re-evaluate capital
plans throughout the year, we consider this business planning process as an opportunity
to establish a level of capital expenditures for use in the capital portfolio management
process (the capital ‘envelope’) and not the review and approval of specific capital
projects as part of the annual budget approval process.
To arrive at our adjusted 2011 capital expenditure budget or capital envelope, we
completed an assessment of the anticipated projects for 2011 in addition to considering
where we are in our 2010 plan. The following is a preliminary list of projects that may
occur in 2011 based on our current knowledge and our 2011 business initiatives. We
know things will change - both priorities and projects - and we will use the capital portfolio
management process throughout the year to manage these changes. We have had
success with this process in 2010 and plan to continue to mature this process in 2011.
The following information provides details on our current capital plan for 2011. Similar to
what has occurred in 2010, the actual projects that will be completed in 2011 will vary,
and include the addition of projects yet to be determined, deferral of projects in this plan
or the elimination of projects deemed no longer necessary. It is anticipated that the key
capital initiatives will be delivered as scheduled.
Additional information on capital projects is provided in Appendix H.




                                                 PAGE 27
                                   2011 Updated Business Plan and Budget Proposal




Capital Expenditures ($ million)
                                                                 2011         2011   2010    2010  2009
                                                                                                 6
                                                             Adjusted         Plan    Est.   Plan Actual
Key Capital Initiatives
  1. Energy Management System                                      2.8         3.2    1.4     3.3    9.7
  2. Wind Integration                                              2.9         3.0    2.3     2.3    1.6
  3. FEOC* Regulation Implementation                               2.7         3.0    0.1     0.1      -
  4. Congestion Management                                         1.9         0.3      -       -      -
  5. Intertie Framework/Demand Response                            1.3         1.9    1.5     1.5      -
  6. Dispatch Tool - Upgrade                                         -         1.0    3.4     3.4    4.4
  7. Transmission and Market Modelling                               -         0.5      -       -      -
  8. Information Management Platform                               1.3         1.8    0.9     0.9    0.8
  9. 2010 General Tariff Application                               0.1           -    0.1     0.1      -
  10. Alberta Reliability Standards                                0.2         0.6      -       -      -
  11. SCC** Expansion                                                -         3.3      -       -      -
  Total Key Capital Initiatives                                   13.2        18.6    9.7    10.8   16.5
Other Capital Initiatives                                          7.3         5.0    6.3     6.3    4.6
Life Cycle Funding                                                 6.5         5.4    6.6     6.6    1.3
Total Capital Spending                                            27.0        29.0   22.6    24.5   22.4
*Fair Efficient Open Competition
** System Coordination Centre


Differences are due to rounding.




Key capital initiatives represent the most critical capital projects over the planning
period that the AESO believes must be completed within the identified timeframe.
Other capital initiatives are also necessary projects; however, they have more flexibility
in planning or delivery so timing is not as critical or they are lower priority than the key
capital initiatives.
Life cycle initiatives are typically replacement of end-of-life hardware and recurring
software upgrades.




                                                   PAGE 28
                                   2011 Updated Business Plan and Budget Proposal




Revenue
The AESO recovers its operating and capital costs through three separate revenue
sources. Each is designed to recover the costs directly related to a specific service as
well as a portion of the shared corporate services costs. The AESO’s operations integrate
the functions of transmission, energy market and load settlement to maximize benefits
under the Electric Utilities Act (EUA). This integration results in cost allocations in many
parts of the organization for the purpose of cost recovery. In determining the revenue
requirement on a function-by-function basis, all AESO costs are assigned or allocated to
one of the three functions. Additional information on the 2011 cost allocation
methodology is provided in Appendix I.
Transmission
The AESO is responsible for paying the costs of managing the provincial transmission
system and recovering the costs through a tariff approved by the Commission. The tariff
is designed to allocate the costs to all users of the transmission system based on level of
usage. The 2011 budget costs related to the transmission function will be incorporated
into the AESO's rates either in a tariff refiling (if one is required in the current 2010 tariff
proceeding) or in a separate rates update application.
Energy Market
The AESO recovers the costs of operating the real-time energy market through an
energy market trading charge on all megawatt hours (MWhs) traded. Based on the
adjusted 2011 budget and an updated trading volume forecast, an energy market trading
charge of 29.6¢ per MWh traded is required for 2011.


Proposed Trading Charge Components                  (¢ per MWh)

                                                                 2011            2011         2010      2009
                                                             Adjusted          Budget       Budget    Budget
AESO Costs                                                           24.8¢          22.1¢     20.1¢    15.7¢
Energy Market Deficit / (Surplus)                                    (1.1)           -         1.0      (2.6)
AESO Component                                                       23.7           22.1¢     21.1¢    13.1¢
Commission’s Portion of
  Energy Market Administration Fee                                     5.9           5.9       6.1      10.1
Total                                                                29.6¢          28.0¢     27.2¢    23.2¢
Differences are due to rounding.




                                                   PAGE 29
                                   2011 Updated Business Plan and Budget Proposal




Proposed Trading Charge Components                  ($ million)

                                                                 2011               2011   2010   2009
                                                             Adjusted
AESO Costs                                                           30.6           27.0   23.7   19.3
Energy Market Deficit / (Surplus)                                    (1.4)           -      1.2   (3.2)
AESO Component                                                       29.2           27.0   24.9   16.1
Commission’s Portion of
  Energy Market Administration Fee                                     7.2           7.2    7.2   12.4
Total                                                                36.4           34.2   32.1   28.5
Differences are due to rounding.



These trading charge amounts are independent of the Market Surveillance Administrator
(MSA) charge. The 2011 MSA cost recovery amount will be communicated to the AESO
in the latter part of 2010. The MSA cost recovery amount is approved by the Chair of the
Commission in an independent budget process.
Load Settlement
Expenses that we incur to provide services related to administering provincial load
settlement are charged to the owners of electric distribution systems and wire service
providers conducting load settlement under Commission Rule 21.




                                                   PAGE 30
                                  2011 Updated Business Plan and Budget Proposal




Appendix A: Multi-Year Budget Process


 Results of Forecast                            Related Budget Process
 If the forecast is below or in line with       At management’s discretion, any under-budget
 the previously approved budget                 amounts will be used to advance future year
 amount.                                        business priorities or will be accumulated in the
                                                deferral accounts.

 If the forecast is above the                   Management would request approval from the
 previously approved budgeted                   AESO Board and subsequently issue a
 amount and the amount is                       stakeholder communication.
 determined to be a ‘manageable
 variance’.
 If the forecast is above the                   Management will review the new funding
 previously approved budgeted                   requirements with stakeholders, followed by a
 amount and the amount is in excess             request for approval from the AESO Board.
 of a ‘manageable variance’.




A manageable variance is a forecast to actual variance that would be:
    •   less than 10 per cent of budgeted general and administrative expenditures
    •   less than 20 per cent of budgeted capital




                                                  PAGE 31
                                   2011 Updated Business Plan and Budget Proposal




Appendix B: Year-To-Date August 2010 Financial Results Detail

Costs
Transmission Operating Costs
The following chart provides the transmission operating costs as of August 2010
compared to the forecast.


Year-to-Date August 2010 Transmission Operating Costs                               ($ million) ~ by production year
                                     YTD August              YTD August              YTD August                2010
                                          Actual               Forecast                Variance            Forecast
Wire Costs                                     428.6                  358.4                     70.2            537.5
Transmission Line Losses                        93.2                  102.5                     (9.3)           173.6
Operating Reserves                              95.7                   55.3                     40.4            112.5
Transmission Must-Run                           16.4                   15.2                      1.2             22.3
Other Ancillary Service Costs                    5.8                    6.3                     (0.5)             9.5
Transmission Operating Costs                   639.6                  537.7                   102.0             855.4

Differences are due to rounding.



Transmission operating costs represent wire, transmission line loss and ancillary services
costs. As of August 2010, costs are higher than forecast by $102.0 million or 19 per cent.
This variance is attributed to significant variances in wire and operating reserve costs.
Wire Costs
Wire costs as of August 2010 are $428.6 million compared to the AESO forecast of
$358.4 million, an increase of $70.2 million or 20 per cent based on the amounts paid
primarily to the owners of transmission facilities in accordance with their Commission-
approved tariffs.
Transmission Line Losses
The cost of transmission line losses is $9.3 million or 9 per cent lower than forecast in the
first eight months of 2010. The average hourly pool price has been $56 per megawatt
hour compared to a forecast of $64 per megawatt hour used for the line loss forecast.
During this period, the volume of transmission line losses has been 26 gigawatt hours or
two per cent less than the forecast (actual volumes of 1,758 gigawatt hours compared to
the forecast of 1,783 gigawatt hours). The variance is due to a combination of higher
volumes in low pool price hours and lower volumes in high price hours as compared to
forecast.
Operating Reserves
Operating reserve costs in 2010 have been $40.4 million or 73 per cent higher than
forecast. This variance is due to significantly higher than forecast pool prices during May



                                                   PAGE 32
                                      2011 Updated Business Plan and Budget Proposal




and June as a result of planned and unplanned transmission outages and constraints
associated with severe spring storms. As operating reserve costs are indexed to the
hourly pool price, higher than forecast pool prices result in higher than forecast operating
reserve costs. Actual operating reserve volumes to the end of August were 5,268
gigawatt hours compared to forecast volumes of 5,524 gigawatt hours, a variance of 256
gigawatt hours or five per cent.
Transmission Must-Run
Transmission must-run costs in 2010 are $1.2 million or 8 per cent higher than forecast.
This increase is attributable to a greater difference between the contract benchmark price
and the pool price in months where the pool price was lower than forecast. Transmission
must-run costs are based on the calculation of a benchmark price and a payment equal
to the difference between the benchmark price and the pool price is only made when the
pool price is lower than the benchmark price. As a result, while the high pool prices in
May and June resulted in lower Transmission must-run payments, it was offset by the
higher cost incurred in months where the pool prices were lower than forecast.
Other Ancillary Service Costs
Other ancillary services include the remaining services that the AESO procures for the
secure and reliable operation of the AIES. These services are procured through bilateral
contracts with suppliers. Over the first eight months of 2010, these costs are lower than
forecast due to a delay in finalizing a new contract with a service provider.


Other Industry Costs
The following chart provides other industry costs as of August 2010 compared to the
AESO’s approved budget.
Year-to-Date August 2010 Other Industry Costs ($ million)
                                          YTD August YTD August                        YTD August      2010
                                               Actual    Budget                          Variance    Budget
Commission Fees – Transmission                          7.9                   7.2              0.7     10.8
Commission Fees – Energy Market                         4.6                   4.8            (0.2)      7.2
External Regulatory Costs                               0.0                   0.3            (0.3)      0.5
WECC/NWPP* Costs                                        2.0                   2.3            (0.3)      5.4
Balancing Pool                                            -                     -                -        -
Other Industry Costs                                  14.4                   14.6            (0.2)     21.9
*Western Electricity Coordinating Council/Northwest Power Pool


Differences are due to rounding.



Other industry costs are costs that are not within the control of the AESO; rather, these
costs are determined by third parties such as the Commission or the board of directors
for the Western Electricity Coordinating Council/Northwest Power Pool (WECC/NWPP).
For 2010, it is anticipated that other industry costs will be close to the budgeted amount.




                                                      PAGE 33
                                         2011 Updated Business Plan and Budget Proposal




General and Administrative Costs
The following chart provides the general and administrative costs as of August 2010
compared to the AESO’s approved budget.


                    60


                    50


                    40
      $ Millions




                    30


                    20


                    10


                     0
                                     Actual                                               Budget

                   Staff Costs                                         Contract Services & Consultants
                   Administration                                      Facilities
                   Computer Services and Maintenance                   Telecommunications




Year-to-Date August 2010 General and Administrative Costs ($ million)
                                           YTD August              YTD August              YTD August        2010
                                                Actual                Budget*                Variance      Budget8
Staff Costs                                            29.4                   29.6                 (0.2)      44.4
Contract Services & Consultants                         8.2                    9.5                 (1.3)      14.5
Administration                                          3.2                    4.7                 (1.5)       7.0
Facilities                                              3.1                    3.1                 (0.0)       4.7
Computer Services and Maintenance                       2.4                    2.2                   0.2       3.3
Telecommunications                                      0.9                    0.9                   0.0       1.3
General and Administrative Costs                       47.1                   50.0                 (2.8)      75.2

* YTD Budget typically reflects the 2010 budget divided by 12 months multiplied by the number of months
reported for the current year actuals - actual spending patterns will vary.


Differences are due to rounding.




                                                         PAGE 34
                                 2011 Updated Business Plan and Budget Proposal




Staff Costs
Operations at the AESO are labour intensive and work is completed through the efforts of
our staff or with the assistance of contractors or consultants. It is anticipated that staff
costs will be close to the budgeted amount for 2010.
Contract Services & Consultants
As of August, costs related to contractors or consultants and audit/review engagements
have been lower than budgeted. Delays or changes to planned work initiatives in the
security and corporate communication areas are contributing to the lower expenditures
for contractors or consultants as of August. It is anticipated that the costs will be incurred
in the latter part of 2010 related to planned audit/review engagements to an amount close
to the full annual budget.
Administration
Administration costs include corporate communications, recruiting, travel and training,
AESO Board fees and office costs that present the general operating costs of the
company. Based on current estimates, it is anticipated that actual costs related to
corporate communications and travel and training will continue to be lower than budget at
the end of the year.
Facilities
There have been no significant unanticipated expenditures related to the facilities.
Computer Services and Maintenance
Ongoing costs are incurred to purchase annual software operating licences and
maintenance agreements for the AESO’s systems. Each year the comprehensive list of
all AESO systems is compiled to capture the existing and anticipated operating licences
and maintenance agreements. For 2010, it is anticipated that we will be approximately
$0.1 million lower than budget at the end of the year.
Telecommunications
Current and year-end costs for telecommunications are anticipated to be close to budget.




                                                 PAGE 35
                                   2011 Updated Business Plan and Budget Proposal




Interest and Amortization Costs
The following chart provides the interest and amortization costs as of August 2010
compared to the AESO’s approved budget.
Year-to-Date August 2010 Costs ($ million)
                                     YTD August              YTD August             YTD August      2010
                                          Actual                 Budget               Variance    Budget
Interest                                           1.6                   1.3                0.2      2.0
Amortization of Capital Assets                     7.2                  11.8              (4.6)     17.7

Differences are due to rounding.

Interest
Higher than anticipated borrowing rates in 2010 account for actual interest costs on
AESO credit facilities being higher than budgeted.
Amortization of Capital Assets
Key variables in developing the annual amortization budget are the type (impacting the
number of years for the amortization period), amount and timing (commission date) of
asset additions. For 2010, it has been concluded that the assumptions used for the type
and timing of the asset additions were different than what has actually occurred to date.


Capital Expenditures
The AESO has three main asset categories: people, technology and processes. While we
invest in all three, only the technology assets (computer systems and system
coordination centre) are our focus for capital expenditures. The development and
acquisition of capital assets is a major budget component given the AESO’s significant
reliance on IT infrastructure and applications to carry out our operations. As with all IT
intensive organizations, our challenge is to find the right balance between implementing
technology advancements, determining the level of IT development that can be
supported by business operations and then establishing the funding requirements to
make it all happen.
To address these challenges, we have implemented and continue to enhance a vetting
and prioritization process to ensure capital expenditures achieve the most beneficial and
cost-effective results to continue to meet operating requirements. We call this the
portfolio management process. As we progress through a planning year, capital projects
are reviewed on an ongoing basis to assess progress and budget spending and identify
unanticipated issues. We also review and prioritize any new requirements that are
identified and determine how they align with existing work. This is a continual process to
ensure alignment of priorities and business needs.
For 2010, we are anticipating capital expenditures of $22.6 million, which is consistent
with the 2010 amended budget6.
Additional information on capital projects is provided in Appendix H.




                                                   PAGE 36
                                   2011 Updated Business Plan and Budget Proposal




Appendix C: 2011 Other Industry Costs

Other industry costs represent fees or costs paid based on regulatory requirements or
membership fees for industry organizations; the amounts of which are not under the
control of the AESO. These costs relate to the annual administration fee for the
Commission, external regulatory costs for the cost recovery related to the AESO’s
regulatory proceedings and the AESO’s share of Western Electricity Coordinating Council
(WECC) and Northwest Power Pool (NWPP) membership fees.

Other Industry Costs ($ million)
                                                                    2011         2010       2009     2008
                                                                    Plan       Budget      Actual   Actual
Commission Fees – Transmission                                       10.8           10.8     10.5      8.6
Commission Fees – Energy Market                                       7.2            7.2      7.1      5.2
External Regulatory Costs                                             0.1            0.5      0.2      0.7
WECC/NWPP Costs                                                       3.4            3.4      3.6      2.2
Balancing Pool                                                          -              -        -        -
Other Industry Costs                                                 21.5           21.9     21.4     16.7


Differences are due to rounding.




                                                   PAGE 37
                                 2011 Updated Business Plan and Budget Proposal




Appendix D: Transmission Operating Cost Definitions

Transmission Line Losses
The annual volume forecast for transmission line losses is based on the following:

    •   The latest forecast of Alberta Internal Load (includes ‘behind-the-fence’ loads
        and new Demand Transmission Service (DTS) contracts).

    •   The grid facility profiles of transmission and generation (existing, new,
        decommissioned).

    •   Transmission must-run (TMR) forecasts based on the latest operational policies
        and procedures (OPPs) and updated generation stacking order based on the
        latest 12 months of actual dispatch behaviour (generators, import and export).

    •   Current export availability transfer capability (ATC) limits.

    •   A loss forecast based on the AIES hourly net to grid levels from the settlement
        system.
The annual forecast for transmission line losses is the accumulation of the hourly
forecasted loss volumes priced at the most current hourly pool price forecasted for that
period. The AESO has used the July 12, 2010 EDC Associates Ltd. commodity price
forecast (ESP Volume 10 Issue 28).
Ancillary Services
Ancillary services are procured by the AESO to ensure ongoing reliability of the
transmission system through contracts which include exchange-traded or over-the-
counter contracts, generation capacity and load reduction capabilities, as well as
contracts that are entered by way of competitive processes. The AESO has entered into
various contracts for ancillary services that include operating reserves, transmission
must-run (TMR), load shed and system restoration.
Operating Reserves
Operating reserves are procured in two ways: through an online exchange and through
over-the-counter contracts. All providers of operating reserves traded on the exchange
are paid the market clearing price whereas all providers who sell volumes over-the-
counter are paid their offer price. In exchange for this payment, the AESO obtains the
right to utilize the provider’s energy and/or capacity as reserves. The majority of
operating reserve offer prices are indexed to the pool price.
Operating reserves are comprised of three types of active reserves, with the minimum
levels of operating reserves based on standards established by the Western Electricity
Coordinating Council (WECC):

    •   Regulating reserves – The provision of generation and load response capability,
        including capacity, energy and maneuverability which respond to the AESO’s
        automatic generation control (AGC) system. In Alberta, regulating reserves track
        variations in the load that cannot be met with energy dispatches. The volumes of



                                                 PAGE 38
                                2011 Updated Business Plan and Budget Proposal




        regulating reserve are specified as a range in megawatts over which a level of
        control is required by the AGC system.

    •   Spinning reserves – Unloaded generation that is synchronized to the system,
        automatically responsive to frequency deviation and ready to serve additional
        demand following an AESO system controller directive. A customer offering
        spinning reserves must be able to ramp up their generator within 10 minutes in
        response to a system controller directive due to a system contingency.
        Spinning and supplemental reserves are required in order to restore frequency
        following the loss of generation in Alberta or in the WECC region. Alberta must
        comply with WECC policies for maintaining specific volumes of spinning and
        supplemental reserves in order to maintain reliability.

    •   Supplemental reserves – While similar to spinning reserves, supplemental
        reserves are not required to respond to frequency deviations. They include
        unloaded generation, off-line generation or system load that is ready to serve
        additional demand (generator), or reduce demand (load), within 10 minutes of a
        directive from the system controller.
Active Operating Reserves
Active operating reserves are the operating reserves that are forecast by the AESO as
necessary to operate the AIES securely and meet the AESO’s reliability obligations to the
WECC.
Standby Reserves
Standby reserves provide additional reserves for use when the resources available under
the active portfolio are insufficient. Payments for standby reserves include a premium for
the option to activate the standby reserves and a price that is paid if the reserves are
activated.
Transmission Must-Run (TMR)
TMR is generation required to be on-line and operating to ensure reliability in specific
areas of the AIES with insufficient transmission capacity. This service is typically
procured through long-term commercial contracts.
The structure of TMR agreements compensates the TMR provider using fixed and
variable payments. Variable payments are based upon keeping a generator whole up to
an established “benchmark price” based on the generating unit’s specific heat rate and
variable operating and maintenance costs. When a unit is operating for TMR and the pool
price exceeds the benchmark price, no TMR payment is made and the service provider
receives the pool price for the energy provided. When a unit is operating for TMR and the
pool price is lower than the benchmark price, the service provider is paid the difference
between the benchmark price and the pool price under the TMR agreement in addition to
receiving the pool price for the energy provided.
The majority of TMR costs are variable. The fixed payment the AESO makes to a TMR
provider does not change with heat rate or gas price, but is prorated based on the
availability of the unit and allows the AESO to call upon the facility for TMR, if required.



                                                PAGE 39
                               2011 Updated Business Plan and Budget Proposal




Appendix E: 2011 General and Administrative Cost Detail

Staff Costs
Staff Costs are determined through the analysis and conclusions reached for several key
budget variables or factors:

   • Base pay adjustments for existing staff or an overall change in the AESO’s
     compensation philosophy - While the compensation philosophy has remained
     unchanged in 2011, we have incorporated a three per cent base pay adjustment in
     2011 for general salaries (2011 approved budget - two per cent adjustment). This
     adjustment percentage is the result of current economic indicators (such as the
     Consumer Price Index and salaries surveys). At the end of each year during the
     company’s annual performance review process, the AESO Board’s Human
     Resources, Compensation and Governance Committee reviews all relevant market
     information to determine the final corporate base pay adjustment.

   • New staff additions - Through a focused approach to re-evaluate and, where
     appropriate, realign the efforts of current staff, we require 19 new staff positions in
     2011 (2011 approved budget - 10 new staff positions). The start dates for new staff
     additions are staggered throughout the year in the budget. Appendix F provides the
     work focus and job descriptions for the new staff positions.

   • Incentive compensation - Our philosophy is to expect the best and for our people
     to find new, innovative and efficient ways to fulfil our mandate with a focus on
     customer service. When this occurs, our incentive compensation will be adjusted to
     reflect this. In preparing this budget, we have confidence in our approach to deliver
     on our goals and have reflected this in our incentive compensation with budgeted
     incentive compensation at 60 per cent of eligibility (2011 approved budget - 60 per
     cent).

   • Vacancy rate - Due to normal staff attrition and the time it takes to find and hire
     new staff, there are always staff positions that remain vacant for part of the year.
     We are anticipating the vacancy rate to be eight per cent in 2011 (2011 approved
     budget – eight per cent), which is consistent with what we anticipate our actual
     annual vacancy rate will be for 2010.

   • Benefit costs - In addition to their salary, each employee participates in the
     company’s comprehensive benefit plan. For the company, this represents costs
     such as health and dental coverage, defined contributions for retirement savings
     and government payroll costs. We present these costs as a percentage of salary
     costs to determine the ‘benefits load factor’, which has been budgeted at 22 per
     cent of salary costs (2011 approved budget – 22 per cent).




                                               PAGE 40
                                     2011 Updated Business Plan and Budget Proposal




Contract Services & Consultants
Contract Services & Consultants ($ million)
                                                       2011          2011          2010       2009     2008
                                                   Adjusted          Plan9       Budget      Actual   Actual

Consulting                                                 15.1        10.3           12.9     12.9     10.6
Legal                                                       0.8         0.8            0.9      1.0      0.9
Audit/Reviews                                               0.6         0.6            0.6      0.4      0.3

Contract Services & Consultants                            16.5        11.7           14.5     14.3     11.8

Differences are due to rounding.


Consulting - We use consultants to supplement the AESO’s staff for three general
purposes. It is not practical for the AESO to retain staff that have all the skill sets that
may be required from time to time. In these circumstances, we utilize consultants to
either complete the work or assist in training AESO staff. Consultants are also used to
address workload peaks to maintain seamless operations and continual progression on
key initiatives. And finally, we consolidate or co-source support services for our IT
infrastructure to facilitate more coordinated and reliable service support. Appendix G
provides summary information on the consulting initiatives.
Legal – Legal counsel is retained to support general business operations by
supplementing in-house legal resource and to provide expertise on legal matters such as
regulatory filings.
Audit/Review – To conduct audits or reviews on AESO or industry stakeholder
processes, systems or reporting, we will use the professional services of others to assist
in these initiatives. Several examples are the financial statement audit, transmission
facility owner compliance on the competitive procurement for transmission facility projects
assigned by the AESO, meter point audits and internal operation audit on key AESO
processes.




9
    2011 Budget approved in AESO Board Decision ‘2010 and 2011-BRP-001’ issued January 2010




                                                     PAGE 41
                                   2011 Updated Business Plan and Budget Proposal




Administration
Administration Costs ($ million)
                                                  2011             2011          2010      2009     2008
                                              Adjusted             Plan9       Budget     Actual   Actual

AESO Board Fees                                         0.6            0.6          0.6      0.6      0.5
Travel and Training                                     2.2            2.4          2.3      1.9      2.1
Insurance                                               0.6            0.6          0.5      0.5      0.5
Other Administrative                                    3.8            3.5          3.5      3.9      3.4

Administration                                          7.2            7.1          7.0      6.9      6.5

Differences are due to rounding.


AESO Board Member Fees – The AESO is governed by the AESO Board whose
members are appointed by the Alberta Minister of Energy. While the number of Board
members can vary from time to time, there can be no more than nine members with their
compensation based on a retainer fee and additional fees based on their Board
committee involvement and time spent on corporate matters.
Travel and Training - The travel and training category covers costs incurred for general
business travel, staff training and associated travel, corporate meetings and related
meals. In addition, costs related to stakeholder open houses for proposed transmission
projects and enhanced public outreach/education are included in this category.
Insurance - The EUA provides limited statutory protection for the business risks of the
AESO organization, directors, officers and staff. To ensure business risks are properly
insured, we carry insurance for exposures not covered by the EUA, specifically for direct
damages resulting from the AESO’s negligence. The AESO has statutory protection for
indirect damages, which would typically be the most costly damages that would occur for
business interruption and lost revenue.
Other Administrative Costs – This includes corporate relations, general office costs,
printing, recruiting, corporate subscriptions/memberships and professional membership
fees. Additional costs are planned for 2011 related to the design, printing and distribution
of a second Powering Albertans publication and additional consultation costs for
transmission projects.




                                                   PAGE 42
                                 2011 Updated Business Plan and Budget Proposal




Facilities
Facilities Costs ($ million)
                                                2011             2011          2010      2009     2008
                                            Adjusted             Plan9       Budget     Actual   Actual

Rent                                                  4.8            4.7          4.7      3.6      3.1

Under two long-term lease agreements ending in 2014, we lease approximately 80,000
square feet of office space in downtown Calgary. The AESO owns and operates the
system coordination centre and has approximately 30,000 square feet of office and
building management space.
To accommodate our redundant computer systems to support seamless operating
performance in the event of a disruption to the operations at the system coordination
centre, we also lease additional office space for our back-up facility. Prior to 2010, both
the lease and operating costs for the back-up facility were included in the computer
services and maintenance cost category.

Computer Services and Maintenance
Computer Services and Maintenance ($ million)
                                                2011             2011          2010      2009     2008
                                            Adjusted             Plan9       Budget     Actual   Actual

IT Maintenance and Services                           6.9            3.8          3.3      3.5      2.6

As we continue to invest in IT infrastructure to support our business operations, ongoing
costs are incurred to purchase annual software operating licences and maintenance
agreements for these systems with high availability requirements that are supported by
premium class maintenance and support agreements. In 2011, we have also
incorporated the costs related to a new strategy for the IT infrastructure support; the
transition to a managed services model for IT infrastructure operating support (network,
server, database and storage).

Telecommunications
Telecommunications ($ million)
                                                2011             2011          2010      2009     2008
                                            Adjusted             Plan9       Budget     Actual   Actual

Telecommunications                                    1.5            1.4          1.3      1.3      1.3

The AESO incurs costs for network systems and telecommunications to support general
business operations and, to a much larger extent, to support real-time operations. The
strategy for developing and maintaining the telecommunication infrastructure is based
upon the requirement for high availability, which necessitates redundancies of services
and equipment.




                                                 PAGE 43
                              2011 Updated Business Plan and Budget Proposal




Appendix F: 2011 Staff Addition Detail


                                                                                Additional
                         Staff Additions                                        2011 Staff
                                                                               Requirements
Transmission            Director, Competitive Procurement                           √
                        Program Manager                                             √
                        Project Managers                                            √√
                        Studies Engineer                                            √
Markets                 Senior Economist                                            √
Regulatory              Manager, Regulatory Services                                √
                        Technical Writer                                            √
Corporate Services      Community Relations Advisor                                 √
                                                Total                               9


TRANSMISSION (5 POSITIONS)

  Director, Competitive Procurement - This resource will provide leadership and
  direct, coordinate and integrate the development and implementation of a competitive
  procurement framework for Alberta’s critical transmission infrastructure projects.
  Program Manager – This resource will provide an oversight and coordination role for
  the successful delivery of critical transmission infrastructure and other major regional
  projects within a specified geographic region.
  Project Managers (x2) - These resources will assume the project management roles
  for critical transmission infrastructure, major regional projects and customer
  connections. They will work closely with the Transmission Facility Owners (TFOs) on
  the communication of project delivery requirements and milestones.
  Studies Engineer - This resource will provide additional study support for connection
  proposals and technical issues related to customer connection and planning.


MARKETS (1 POSITION)
  Senior Economist - This resource will provide assistance in the planning,
  development and maintenance of economic models used for forecasting purposes,
  including the models used for the long-term load forecast.


REGULATORY (2 POSITIONS)
  Manager, Regulatory Services and Technical Writer – These resources will
  manage and coordinate various hearings and supporting processes for both Need


                                              PAGE 44
                               2011 Updated Business Plan and Budget Proposal




  Identification Documents (NID) applications and market rules and will compile and
  write NID documents respectively.


CORPORATE SERVICES (1 POSITION)
  Community Relations Advisor - This resource will provide assistance for
  stakeholder relations and community/public outreach including identifying and
  facilitating opportunities to build relationships with key stakeholders and assist in the
  planning and implementation of communications strategies for key projects.




                                               PAGE 45
                                2011 Updated Business Plan and Budget Proposal




Appendix G: 2011 Consulting Cost Detail


Technical Resources ($ millions)                                                  2011      2011
                                                                                 Adjusted   Plan
Technical Standards/Studies – execution of studies and/or                          1.3      1.4
assistance with standards development for Alberta Reliability
Standards, critical transmission infrastructure development,
interties, wind integration, new technologies, load forecasting,
security and system restoration
Communications – general corporate communications support                          0.7      0.7
including transmission initiatives
Communications – analysis of the effectiveness of Powering                         0.3
Albertans, research and polling
Competitive Procurement – assist with competitive oversight and                    0.7       -
procurement processes including engineering cost estimates
Connection Projects – complete studies and connection proposals                    0.6      0.6
for wind generation, industrial projects, etc.
Market Development and Design – technical support on market                        0.6      0.3
initiatives including expertise from other jurisdictions
Forecasting Initiatives – long-term plan modeling incorporating                    0.5       -
new scenarios resulting from supply adequacy/market sustainability
assessments in addition to new load and generation forecasts
IT Process Enhancements – improve maturity of IT processes and                     0.4       -
consolidate existing data warehouses
Corporate Strategy – develop and implement a strategy for                          0.4      0.9
organization changes including development of an operating model
to deliver business results that are aligned to the strategic plan;
development and implementation of human resource strategies and
government relations
Development of IT Enterprise Architecture – further                                0.4       -
development of IT strategy and architecture plans for technology,
information, and applications
Energy Trading System (ETS) Project Initiation – research and                      0.4      0.4
preparation of request for information and request for proposal
documents and vendor analysis for replacement of the ETS and
related market systems
Facility Planning - office space planning to maximize utilization of               0.2       -
existing facilities
Long-term Transmission Development Plan Development –                              0.2      0.2
complete technical studies and document writing/communication




                                                PAGE 46
                                2011 Updated Business Plan and Budget Proposal




Technical Resources ($ millions)                                                  2011      2011
                                                                                 Adjusted   Plan
Regional Advisors – retain six provincial representatives to                       0.1      0.1
provide feedback and suggestions on electricity industry matters
and share their expertise and local knowledge for inclusion in
AESO outreach programs, consultation processes and
communication initiatives
Record/Document Management Project – develop and                                   0.1      0.1
implement a strategy on record and document retention and filing
Miscellaneous Projects Less Than $0.1 Million                                      1.4      1.2
Total Technical Resources                                                          8.3      5.9



                                                                                  2011      2011
Workload Peaks – Supplement Staff Resources ($ millions)
                                                                                 Adjusted   Plan
Transition of Authoritative Documents – project management                         0.8      0.7
and supplementary resources to implement a standardized process
for authoritative documents (creation of market rules, OPPs,
standards and business practices)
Need Identification Documents – supplementary resources to                         0.2       -
write and review documents
Software Application Administration – supplementary resources                      0.2      0.1
for the management of new applications
Miscellaneous Projects Less Than $0.1 Million                                      0.3      1.2
Total Workload Peaks                                                               1.5      2.0



Co-source IT Support ($ millions)                                                 2011      2011
                                                                                 Adjusted   Plan
Co-sourcing arrangements are in place to provide resources with                    2.1      2.5
specialized skill sets to support and maintain specific IT systems in
a cost-effective manner. This co-source strategy is being used on
the following: EMS, EMS historian database (PI), enterprise service
bus (TIBCO), local and wide area network, data storage
technologies, service desk support, server and database
administration and various corporate systems (billing, HR,
accounting).
Total Co-source IT Support                                                         2.1      2.5




                                                PAGE 47
                                   2011 Updated Business Plan and Budget Proposal




IT Application System Maintenance ($ millions)                                       2011      2011
                                                                                    Adjusted   Plan
Resources to provide ongoing maintenance of existing systems to                       1.1       -
ensure these systems continue to provide reliable and accurate
functionality (non-capital costs). Cost incurred for this type of work
have occurred in previous years but have been shown to be
increasing with the number and complexity of the AESO
applications which has prompted separate disclosure in the budget.



Validation Phase of Capital Projects ($ millions)                                    2011      2011
                                                                                    Adjusted   Plan
AESO Board decision in June 2010 to increase consulting costs by                      2.1       -
$2.1 million related to costs incurred for the validation phase of
capital projects (transferred from the general capital budget)



Total Consulting                                                                     15.1      10.4


Differences are due to rounding.




                                                   PAGE 48
                                   2011 Updated Business Plan and Budget Proposal




Appendix H: Capital Projects

The following tables provide information on the AESO’s current capital plan for 2011.
Actual projects to be completed in 2011 will vary, and include the addition of projects yet
to be determined, deferral of projects in this plan or elimination of projects deemed no
longer necessary.


Key Capital Initiatives ($ millions)
    These are the most critical capital projects over the planning period that the AESO
    believes must be completed within the identified timeframe.

                                       Key Capital Initiatives

                   Description           The next phase of the EMS implementation which includes
                                         improved situational awareness, look-ahead functionality,
                                         load-shed services and a system controller training
                                         environment.

EMS (Energy        2010 Progress         Phase II implementation update - EMS advanced application
Management                               capabilities implemented into real-time operations,
System)                                  application enhancements, calculation engine validation
                                         activities and an improved testing environment.

                   2011 Plan             Phase III implementation - Improve efficiency in support and
                                         the use of the system as well as any needed software
                                         versioning updates.

                   Description           Develop and deploy tools, market rules and products that
                                         assist with the integration of additional wind power
                                         facilities to the AIES.

                   2010 Progress         The development of tools and rules to support system
Wind                                     controller use of wind forecasting and establish wind power
integration                              management requirements and protocols.

                   2011 Plan             Continued development and implementation of system
                                         controller wind forecasting and wind power management
                                         tools along with the development of new market products to
                                         support wind integration.

                   Description           Develop and deploy tools to assist with the implementation
                                         of protocols to ensure participants act in accordance with
Fair Efficient                           FEOC mandate - section 6.
Openly
Competitive        2010 Progress         Completion of warranty work for merit order – offer control
(FEOC)                                   reporting and self registration capabilities.
regulation
                   2011 Plan             System changes supporting the next stage of the FEOC
                                         regulation requirement implementation.




                                                   PAGE 49
                                  2011 Updated Business Plan and Budget Proposal




                                    Key Capital Initiatives

                  Description           Develop and deploy automation tools that facilitate
                                        management of transmission constraints in specific AIES
                                        operating areas.
Congestion
management        2010 Progress         No capital invested; awaiting Commission decision on rules.

                  2011 Plan             System modifications in support of the revised rules.

                  Description           Develop and implement a framework and tools that support
                                        increased transfer capacity with neighbouring jurisdictions.
                                        This includes but is not limited to restoring existing intertie
                                        capacity, support for merchant transmission
                                        additions and dynamic scheduling solutions.

Intertie          2010 Progress         System modification/developments supporting the
                                        implementation of a LSSi product and recommendations for
framework
                                        further intertie restoration as well as additional restoration
                                        initiatives.

                  2011 Plan             Implementation of the LSSi product. System and
                                        operational modifications/developments required to support
                                        MATL integration. Participation in WECC initiative to
                                        implement dynamic scheduling.

                  Description           Dispatch tool stabilization and enhancements supporting
                                        energy market changes. Ensure dispatch down service and
                                        dispatch variance notification.
Dispatch tool -
upgrade/enhan     2010 Progress         Upgrade completed in June with warranty work continuing
cement                                  through to year end.

                  2011 Plan             None. Ongoing enhancement work to be included in the
                                        System Enhancement program.

                  Description           Implement an Alberta industry standard planning model of
                                        the AIES.
Transmission
and market        2010 Progress         No capital invested. Initial business case estimates were not
modelling                               cost justified.

                  2011 Plan             None. Revisit opportunity in a future budgeting period.

                  Description           Develop and implement a data analysis and reporting
                                        platform supporting stakeholder (authorized) access and
                                        reporting requirements.
Information
management        2010 Progress         The addition of two production system data provisioning
                                        interfaces to the data warehouse.
platform
                  2011 Plan             Continued production system data provisioning interfaces.
                                        Procurement of a third party Export Transform Load (ETL)
                                        product.




                                                  PAGE 50
                               2011 Updated Business Plan and Budget Proposal




                                 Key Capital Initiatives

               Description           Develop and implement changes to the transmission billing
                                     system that support the 2010 GTA rate and calculation
2010 General                         structure.
Tariff
Application    2010 Progress         System development and modifications required to support
(GTA) 2010                           the 2010 GTA.

               2011 Plan             Implementation of the 2010 GTA system changes.

               Description           Implement compliance management and reporting tools that
                                     support business practices and processes and ensure
Alberta
                                     internal and external adherence to ARS.
Reliability
Standards      2010 Progress         Capital investment not planned.
(ARS)
               2011 Plan             Deployment of compliance management tools as required.

               Description           Implement SCC expansions to accommodate the increase
System                               in staffing requirements.
Coordination
Centre (SCC)   2010 Progress         No capital invested. Review of justification requirements
Expansion                            identified the opportunity to delay the expansion by leasing
                                     space at an alternate location.

               2011 Plan             None. Revisit opportunity in a future budget period.




                                               PAGE 51
                                     2011 Updated Business Plan and Budget Proposal




Where applicable, references have been provided to the related strategic objective
provided in the 2010 – 2011 Business Plan and Budget Proposal document that was
distributed as part of the Budget Review Process in September 20093 (and subsequently
approved by the AESO Board).


                                     Current         Approved           Adjusted       Adjusted      2010-2011
                                      2010             2010               2011        2010-2011     Capital Plan
      Key Capital Initiatives                         Capital            Capital        Capital
                                    Estimated                                                          Totals
 (strategic objective reference)                     Projects
                                                              10
                                                                          Plan        Plan Totals
                                     Capital                                                          (from
                                    Spending              (a)               (b)         (a + b)     2009 BRP)

                              7
EMS (strategic objective 5)            1.4                0.7               2.8           3.5           7.0

Wind integration (strategic
                                       2.3                3.2               2.9           6.1           6.2
objective 5)

Fair Efficient Openly Competitive
(FEOC) regulation (strategic           0.1                0.5               2.7           3.2           6.0
objective 1)

Congestion management
                                         -                0.5               1.9           2.4           2.3
(strategic objective 1)

Intertie framework (strategic
                                       1.5                0.5               1.4           1.8           3.5
objective 1)

Dispatch tool -
upgrade/enhancement (strategic         3.4                2.7                -            2.7           1.7
objective 5)

Transmission and market
                                         -                 -                 -             -            1.2
modelling (strategic objective 2)

Information management platform
                                       0.9                1.4               1.4           2.7           2.4
(strategic objective 5)

2010 General Tariff Application
                                       0.1                0.1               0.1           0.1           0.4
(GTA) 2010

Alberta Reliability Standards            -                 -                0.2           0.2           0.6

SCC expansion (strategic
                                         -                 -                 -             -            3.3
objective 4)

Key Capital Initiatives                9.7                9.6              13.2          22.8          34.6



Differences are due to rounding.




10
   This column represents the amount apportioned to the program by management through the ongoing
Portfolio Management Process.



                                                     PAGE 52
                                      2011 Updated Business Plan and Budget Proposal




Other Capital Initiatives ($ millions)
     These are necessary projects that have more flexibility in planning or delivery so
     timing is not as critical or they are lower priority than the key capital initiatives.

                                                                                                       2010-2011
                                                                                        Adjusted      Capital Plan
                                                                                        2010-2011        Totals
Other Capital Initiatives                           Description
                                                                                       Capital Plan
                                                                                          Totals        (from
                                                                                                      2009 BRP)

                            Implement a settlement verification model and
Load settlement program                                                                    0.5            1.9
                            integrate with other AESO systems.

Interconnection project     Identify and implement a project management and
support and reporting       reporting tool to manage the queue of system                   0.5            1.8
(strategic objective 3)     interconnection projects the AESO oversees.

                            Procure and implement a testing environment that
IT test & production        facilitates application cloning (set up and removal) and
environment (strategic      simulates the AESO’s production environments (pre-             0.0            1.2
objective 5)                production testing).


Identify access             Identify and implement a common user
management (strategic       (internal/external) identification authorization process       0.0            1.2
objective 5)                for all IT systems/services.

                            Replace fragile point-to-point integrations between
IT ESB integrations
                            legacy systems with publish and subscribe data links           0.4            1.1
(strategic objective 5)
                            using an enterprise service bus.

Enterprise content
                            Retire and replace the existing enterprise content
management (strategic                                                                      0.3            1.0
                            management and workflow product.
objective 1)

                            Define and identify areas for AESO website
AESO website (strategic     improvement. Based on findings, modify internal and
                                                                                           0.6            0.7
objective 6)                external websites to enhance stakeholder navigation
                            and functionality.

                            Implement security improvements to IT systems to
IT security program         reduce security risks to critical IT services and              0.8            0.7
                            infrastructure.

SCC voice and order-wire    Install new hardware and software to support new
                                                                                           0.6            0.5
enhancements                operator order-wire functionality at the SCC.

Price cap and floor         Modify AESO marketing systems that remove existing
                                                                                           0.0            0.4
(strategic objective 1)     price cap/floor limits.

                            Modify system HVDC logic into the forecasting
Loss factor determination                                                                  0.3            0.3
                            algorithms.




                                                      PAGE 53
                                     2011 Updated Business Plan and Budget Proposal




                                                                                                      2010-2011
                                                                                       Adjusted      Capital Plan
                                                                                       2010-2011        Totals
Other Capital Initiatives                          Description
                                                                                      Capital Plan
                                                                                         Totals        (from
                                                                                                     2009 BRP)

                            Design, develop and implement AESO systems that
Operating reserve market
                            allow for ancillary services market changes to
redesign (strategic                                                                       0.0            0.3
                            accommodate harmonization and convergence with the
objective 1)
                            energy market.

Service Management and      Software tools to manage and monitor IT services
                                                                                          0.6            0.0
Monitoring                  (incidents, changes, configurations).

System Enhancement          Ongoing minor enhancements to production
                                                                                          6.2            0.0
Program                     applications

Miscellaneous               Other projects not exceeding $0.25 million.                   2.8            1.9

Other Capital Initiatives                                                                13.6           13.0




                                                     PAGE 54
                                       2011 Updated Business Plan and Budget Proposal




Life Cycle Initiatives      ($ millions)

     These are typically replacement of end-of-life hardware and recurring software
     upgrades.



                                                                                                        2010-2011
                                                                                         Adjusted      Capital Plan
     Life Cycle                                                                          2010-2011        Totals
                                                 Description
     Initiatives                                                                        Capital Plan
                                                                                           Totals        (from
                                                                                                       2009 BRP)

Oracle database         Upgrade the AESO’s database environments (development,
                        test and production to a current version) as mainstream             2.8            3.1
upgrade
                        support for the installed version ends April 2010.

                        Retire and replace corporate server hardware/software
Server upgrades                                                                             1.1            2.0
                        based on pre-determined corporate retirement plan.

                        Upgrade AESO voice and data networks to ensure vendor
                        support, meet reliability requirements and address
Network upgrades        increased capacity needs. This includes data switches,              3.5            1.3
                        telephone system, remote access capabilities, and
                        redundancy of SCC critical network services.

                        Implement a new storage infrastructure designed to address
                        existing end-of-life cycle considerations and support the
Storage upgrade                                                                             1.8            1.2
                        high-performance storage requirements of online
                        stakeholder systems (e.g., Energy Trading System).

                        Upgrade backup and restore platform, as the AESO’s
Information archiving
                        current archiving platform cannot keep pace with the                0.7            1.0
upgrade
                        explosive data growth.

                        Ongoing investment in desktop systems and mobile devices
Personal system
                        to replace aging software and equipment and accommodate             1.6            1.0
refresh
                        resource growth.

                        Upgrade the AESO’s computing workstations to an
Desktop Microsoft
                        appropriate version of Windows and Office as mainstream             1.5            0.7
upgrade
                        support (i.e. XP and Office 2003) ends April 2009.

Application server      Migrate AESO applications still running dated (end-of-life)
                        application server technology to the new application server         0.3            0.5
upgrade
                        environment.

Life Cycle
                                                                                           13.1           10.8
Initiatives




                                                       PAGE 55
                                    2011 Updated Business Plan and Budget Proposal




Appendix I: Allocation of Costs

Management reviews allocation percentages twice a year. They are first reviewed when
the annual budget is prepared and again at year-end when the allocations are finalized
based upon actual activities and costs. This methodology has not changed from that
used in prior years, although the allocation percentages change to reflect the
business/operational activities each year.
The following table has been updated to reflect the adjusted 2011 allocations.



                                             Transmission                 Energy           Load
            AESO Department
                                                 (%)                     Market (%)   Settlement (%)
                                         DIRECT OPERATING
    Transmission North                               100
    Transmission South                               100
    Transmission Support                              95                        5
    Operations Systems                                67                        33
    Grid and Market Operations                        67                        33
    Operational Effectiveness                         67                        33
    Market Design                                     20                        80
    Market Operations                                 35                        65
    Forecasting                                       50                        50
    Commercial                                       100
    Regulatory                                        33                        67
    Regulatory Transmission Support                  100
    Compliance                                        35                        30         35
                                         SHARED SERVICES
    Corporate Services*                           Based on Direct Operating Group Costs (%)
    Information Technology**                          63                        31          6
    Office Lease                                              Based on AESO Staff Count
                                                CAPITAL
                                   Assigned on a Project Basis
*
     Includes departments such as: Accounting, Settlement & Risk, Human Resources,
     Corporate Communications, etc.
**
     Based on 2009 actual allocations.




                                                    PAGE 56

				
DOCUMENT INFO