ONTARIO POWER AUTHORITY (OPA) ANNOUNCES AMENDMENTS TO COMBINED HEAT AND POWER STANDARD OFFER PROGRAM (CHPSOP) AND ENERGY RECOVERY STANDARD OFFER PROGRAM (ERSOP) RULES, CONTRACTS AND DEFINITIONS

On March 31st, 2011, the OPA provided a notice to CESOP stakeholders of amendments proposed to the CHPSOP and ERSOP Rules, Contracts and Definitions.The amendments reflect the OPA’s response to various comments and issues that were identified by stakeholders to date in the CESOP consultation process.

PROJECT LOCATION APPLICATION REQUIREMENTS

The original draft CHPSOP and ERSOP Rules and Contract provided for a list of areas in the Province of Ontario where Projects could be located. The amendments provide that following the Launch Period, the OPA will accept Applications for Projects in other areas of the Province as well. In addition, if an Impact Assessment for a proposed generating facility was submitted and paid for prior to November 23, 2010, then such Projects are not required to be located in the areas designated by the OPA.Following the end of the Launch Period, the OPA will temporarily cease accepting Applications for both the CHPSOP and ERSOP until it has completed processing the Launch Applications and determined whether there is any remaining Available Capacity. If the Available Capacity of 200 MW is fully subscribed by Applications following the completion of the Launch Period, which is generally expected, then few Projects are likely to be accepted in areas outside of those designated by the OPA.

BEHIND-THE-METER FACILITIES

In response to numerous submissions made to the OPA during the various stakeholder sessions, the OPA has revised the CHPSOP and ERSOP Rules to further clarify the issues to be addressed for behind-the-meter-facilities. The amendments require that the Supplier accept all costs and risks associated with complying with the applicable LDC’s metering and settlement requirements, including ensuring compliance with the “Debt Retirement Charge” requirements under Regulations 493/01 and 494/01 made pursuant to the Electricity Act.

Further, each of the CHPSOP and ERSOP Rules continue to provide that the OPA must be satisfied that there is a sufficient technical rationale to justify a behind-the-meter configuration. Despite stakeholder submissions to the OPA requesting clarity around what constitutes sufficient technical rationale, the OPA has declined to provide any further clarity. If the OPA does not accept the Applicant’s rationale, the Applicant will be provided an opportunity to revise its Connection Point such that its Project is no longer a Behind-the-Meter Facility. If the Applicant declines to submit such revised Connection Point, the Application will be considered incomplete and rejected by the OPA.

The OPA has provided additional information for consideration by Applicants considering Projects configured as Behind-the-Meter Facilities. First, the OPA has indicated that LDCs may not connect Projects in which at any time the Delivered Electricity from a Project will exceed the Electrical Host Facility’s load, because such settlement would require the subtraction of values as between the Electrical Host Facility’s meter and the Facility’s meter which is referred to as subtractive totalization of metering. Applicants are advised that in order to avoid subtractive totalization of metering, Projects should have the capability of “premises islanding” on the LDC side of the load and generation metering installations. However, configured in such a manner, the OPA acknowledges that such Projects would not be Behind-the-Meter Facilities.

Each of the CHPSOP and ERSOP Contracts will be amended for all Behind-the-Meter Facilities to ensure that any financial benefit to the Facility or the Electrical Host Facility that accrues by virtue of the Facility Delivering Electricity as a Behind-the-Meter Facility is returned to the OPA. To ensure there is no need for subtractive totalization, the Applicant may be required to forego any compensation for a net injection to the Distribution System.

CONNECTION AVAILABILITY MANAGEMENT

The Rules for each of the CHPSOP and ERSOP have been amended to clarify the process by which the OPA will assess the connection availability of Applications. Once an Application has been accepted by the OPA, the OPA will conduct a connection availability screen along with the IESO and applicable Transmitters to determine if the Transmission System has sufficient connection resources to accommodate the connection of the Project. The OPA will also coordinate with any applicable LDC to confirm the LDC’s determination regarding whether it has or will have sufficient connection resources to accommodate the connection of the Project. The connection availability screen will take into consideration, all prior Applications that have been processed; applications for projects under the respective programs submitted prior to the Application; contracts for Feed-in Tariff projects; and any other generating facilities that are existing, committed or are the subject of a ministerial direction. Following the end of the Launch Period, the process for assessing the connection availability of Projects will occur in coordination with other OPA connection availability processes, including the Transmission Availability Test and the Distribution Availability Test, bother of which are run pursuant to the Feed-in Tariff Program.

The amendments further provide that as between CHPSOP Applications and ERSOP Applications, for the purposes of coordinating the connection availability screen during the Launch Period, the OPA will alternate between CHPSOP Applications and ERSOP Applications, starting with a CHPSOP Application.

If the connection availability screen determines that there are sufficient Transmission System and Distribution System resources available to accommodate the connection of the Project, the OPA will offer a contract. However, if as a result of the analysis it is determined that there are insufficient resources available to accommodate the connection of the Project, the OPA will reject the Application and will return the Application Security to the Applicant.

MILESTONE DATE FOR COMMERCIAL OPERATION

The CESOP Rule amendments confirm that the Milestone Date for Commercial Operation will be the date that is three (3) years after The Contract Date.

ENVIRONMENTAL ATTRIBUTES

The provisions in the ERSOP Contract concerning Environmental Attributes were not amended by the OPA. The revised draft of the CHPSOP Contract, sets forth the OPA’s preferred approach to Environmental Attributes for the CHPSOP. The amended CHPSOP Contract provides for the Supplier’s obligation to obtain, qualify and register all Environmental Attributes that are applicable to the Contract Facility, defined as the Regulatory Environmental Attributes (REAs). The REAs available under the Ontario Emissions Trading Program (defined as OETP Attributes) as of the date of the execution of the CHPSOP Contract are retained by the Supplier. The OPA is entitled to all REAs other than the OETP Attributes.

The CHPSOP Contract further contains a change of law provision concerning Greenhouse Gas emissions. In such circumstances, the CHPSOP Contract is to be amended in accordance with prescribed principles including to reflect the Supplier’s reasonable costs of compliance. If the GHG Emission Credits required in the future and the REAs are less than what is required, the OPA provides that the CHPSOP Contract will be amended, including changes to Exhibit J, to take into account the Supplier’s costs of compliance. Conversely, if the GHG Emission Credits required are less than the Supplier’s REAs, then the OPA is entitled to such excess REAs.

USEFUL HEAT OUTPUT

The original draft CHPSOP Rules provided that all Applicants are required to submit a plan that is satisfactory to the OPA for the proposed Contract Facility to provide Useful Heat Output. In Section 3.2(a) of the CHPSOP Rules, the OPA has inserted a new paragraph confirming that in order to assess the percentage of total energy output of the Contract Facility that is Useful Heat Output, the OPA will assume that the Contract Facility generates Electricity at the Annual Average Contract Capacity for a minimum of 2200 hours per year, which corresponds approximately to the average number of hours the Virtual Power Plant would have been imputed to operate in 2008, 2009 and 2010, based on the heat rates applicable to a Seasonal UHO Facility.

The CESOP stakeholder question and comment period expires April 6th, 2011.