APRIL 28, 2006 ROLES AND MANDATES REFINEMENTS FOR ALBERTA ELECTRICITY INDUSTRY IMPLEMENTING AGENCIES:

APRIL 28, 2006 ROLES AND
MANDATES REFINEMENTS FOR
ALBERTA ELECTRICITY INDUSTRY
IMPLEMENTING AGENCIES:
RESPONSE TO STAKEHOLDER
COMMENTS AND
RECOMMENDATIONS ON
THE NOVEMBER 28, 2005 PAPER
April 28, 2006
Alberta Department of Energy
Table of Contents
PART 1: INTRODUCTION............................................................................................ 1
PART 2: RATIONALE FOR ROLES AND MANDATES REFINEMENTS............ 1
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Act Remains High Level Structure ................................................................................ 2
A Unique Agency Structure for the Alberta Electric Industry ................................... 2
Market Continues to Emerge and Restructure............................................................. 2
Lead Role for DOE in Determining Roles and Mandates of the Implementing
Agencies ............................................................................................................................ 3
Administrative and Operational Efficiencies are Essential ......................................... 3
Stakeholder Input is Essential ........................................................................................ 3
The Importance of Due Process...................................................................................... 4
A Sense of Urgency is Essential ...................................................................................... 4
PART 3: A BALANCING OF PRINCIPLES................................................................ 4
3.1 Clear Legislative Empowerment, Combined with Sufficient Discretion and
Flexibility .......................................................................................................................... 4
3.2 Expedient and Cost Effective Decisions ......................................................................... 5
3.3 Rule Consultations........................................................................................................... 5
3.4 Transparent Process ........................................................................................................ 5
3.5 Enforceability ................................................................................................................... 5
3.6 Procedural Fairness, and Reconsideration of Initial Decisions ................................... 5
3.7 Certainty and Consistency .............................................................................................. 5
3.8 Independence and Respect .............................................................................................. 6
3.9 Harmonization ................................................................................................................. 6
PART 4: SPECIFIC AGENCY REFINEMENTS ........................................................ 7
4.1 Independent System Operator (ISO) ............................................................................. 7
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5
4.1.6
4.1.7
4.1.8
4.1.9
4.1.10
Basic Role Description............................................................................................................. 7
ISO “Own Costs” Approval.................................................................................................... 7
Ancillary Services and Line Losses Costs Determination .................................................... 9
Transmission Must Run (“TMR”) Services ........................................................................ 10
Determination of Need for Interconnections and Small Transmission Projects .............. 11
Determination of Need for and Approval of Larger Transmission Projects.................... 13
Collaboration between the ISOs, the TFOs and the EUB .................................................. 14
ISO Stakeholder Consultations ............................................................................................ 15
Dispute Resolution Process ................................................................................................... 16
System Settlement Code: Rule-Making Authority ............................................................. 18
4.2 Market Surveillance Administrator (MSA) ................................................................ 21
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
4.2.6
4.2.7
Basic Role Description........................................................................................................... 21
Guidelines............................................................................................................................... 21
Conduct Compliance Plans................................................................................................... 24
Publishing by the MSA.......................................................................................................... 26
Affiliated Retail Codes of Conduct....................................................................................... 27
Recourse for MSA Determinations ...................................................................................... 29
Negotiated Outcomes............................................................................................................. 29
4.3 Alberta Energy Utilities Board (EUB) ......................................................................... 31
ECL 13196-01
ii
4.3.1
4.3.2
4.3.3
4.3.4
Basic Role Description........................................................................................................... 31
EUB Consideration of Decisions by the ISO ....................................................................... 31
Appropriate Rates of Return................................................................................................ 32
180 Day Time Line................................................................................................................. 32
4.4 Balancing Pool................................................................................................................ 35
4.4.1 Basic Role Description........................................................................................................... 35
4.4.2 Role in Electricity Market..................................................................................................... 35
4.5 Utilities Consumer Advocate (UCA) ............................................................................ 36
4.5.1 Basic Role Description........................................................................................................... 36
4.5.2 UCA Role in Market Discussions ......................................................................................... 36
PART 5: PROCESS GOING FORWARD .................................................................. 37
ECL 13196-01
iii
PART 1:
INTRODUCTION
On November 28, 2005 the Alberta Department of Energy (the DOE) released a policy
paper entitled, “Role and Mandate Refinements for Alberta Electric Industry
Implementing Agencies” (the Roles and Mandates Paper). The purpose of the Roles
and Mandates Paper was to elaborate on and clarify certain sections of the broader June
6, 2005 market policy paper entitled, “Alberta’s Electricity Framework: Competitive –
Reliable - Sustainable”(the June Paper), related to certain refinements to implementing
agency mandates and proposed to be included in a series of forthcoming regulatory
amendments.
Prior to its release, the DOE indicated that it would seek written comments from
stakeholders on the refinements set out in the Roles and Mandates Paper. Many
stakeholders did respond with detailed and considered written submissions. Some also
requested that the DOE further explain its rationale for proposing specific refinements by
holding an Electric Utilities Act (the EUA) Advisory Committee Meeting. In response,
the DOE held two such meetings, one on January 30, 2006 and the next on February 6,
2006. The DOE also held a series of bilateral meetings with those stakeholders who
indicated an interest in this opportunity. These were held through the month of
December, 2005, as well as January and February, 2006.
Important feedback from stakeholders has led to various refinements in the final
document on roles and mandates. These refinements will be further articulated in
following draft regulations.
In this paper “Stakeholder Comments” will collectively refer to the filed written
comments, remarks made in bilateral meetings, and those articulated in the two Advisory
Committee meetings.
PART 2:
RATIONALE
FOR
REFINEMENTS
ROLES
AND
MANDATES
In addition to seeking comments from stakeholders over role clarification and
refinements, the DOE has consulted with the Alberta Energy and Utilities Board (EUB)
the Independent System Operator (the ISO), the Market Surveillance Administrator (the
MSA), and the Balancing Pool, (collectively the Implementing Agencies).
In reviewing and assessing Stakeholder Comments, it is evident that many stakeholders
have had differing opinions as to the need for the DOE to pass regulatory changes to
refine and clarify the roles for each of the Implementing Agencies. Part 2 of this paper
contains a more detailed explanation of that basic rationale.
ECL 13196-01
1
2.1
Act Remains High Level Structure
The EUA is framework legislation which empowers the Implementing Agencies and
provides them with their basic mandate in respect of regulating electricity markets in
Alberta. This is consistent with the legislative approach to other industries, where
operational rules to guide the regulatory agencies and industry are articulated in
regulation. The DOE supports the independence of the Implementing Agencies, and
expects them to properly interpret and implement government policy and their respective
mandates going forward. However, as with other industries, it is prudent for the DOE to
recommend to the Minister of Energy that the roles of these agencies be refined from
time to time as the market evolves.
2.2
A Unique Agency Structure for the Alberta Electric Industry
There are four separate Implementing Agencies which have roles under the EUA. The
DOE has responsibility for establishing or clarifying the policies under which the four
Implementing Agencies function. In addition, many stakeholders have observed that the
office of the Utilities Consumers Advocate (the UCA) is a fifth agency active in the
electricity market under Alberta Government Services. The DOE has been urged to
coordinate as much as possible with that agency as well.
Some stakeholders have commented that, rather than refining the roles of the
Implementing Agencies, the DOE should complete a thorough, “holistic” reconsideration
of the fundamental mandates of each, possibly leading to some form of a consolidation.
The DOE fully agrees with the need to clarify roles and mandates now in order to ensure
greater agency efficiency and effectiveness. Such objectives were behind the DOE initial
decision to produce the Roles and Mandates Paper. The purpose of this paper and the
forthcoming regulations is to provide more clarity as to how those objectives can be
achieved.
2.3
Market Continues to Emerge and Restructure
One reason for monitoring and clarifying the roles of the Implementing Agencies is that
such roles must respond and adapt to emerging and perhaps unforeseen market
conditions. This arises from the original design of the enabling provisions under the EUA
which empower the Implementing Agencies on a high level. It is imperative for the DOE
to provide a proper balance on an ongoing basis between ensuring agency role and rule
certainty and ensuring the agencies can respond effectively to Alberta’s evolving market
conditions.
ECL 13196-01
2
2.4
Lead Role for DOE in Determining Roles and Mandates of the
Implementing Agencies
Many stakeholders have endorsed the need for the DOE to clarify agency roles and
mandates in order to reduce overlap and inefficiencies. The DOE has also heard
representatives of the Implementing Agencies voice the need for the DOE to provide
guidance in resolving mandate conflicts which inevitably occur in a dynamic,
restructuring market.
2.5
Administrative and Operational Efficiencies are Essential
It is the view of the DOE that, regardless of the structure of the market and the state of its
development, participants need effective and efficient agency processes, determinations,
consultation and implementation plans. Stakeholders need to know with clarity and a
high degree of certainty:
•
•
•
•
•
•
•
which agency will decide which issue;
the rules of that agency;
when the agency process will commence;
what stakeholders have to do to represent their interests in front of the agency;
when the process will end;
how they are expected to comply with outcomes; and
what avenues of appeal are open to them.
Providing stakeholder certainty was a primary motivation for developing the refinements
set out in the Roles and Mandates Paper. The Stakeholder Comments have offered many
useful suggestions and have been incorporated into this paper.
2.6
Stakeholder Input is Essential
The DOE is committed to meaningful stakeholder input on major policy and regulatory
initiatives, and expects all Implementing Agencies to develop and respect stakeholder
input in a similar fashion. All of these agencies will be directed to continue to develop
open, transparent and inclusive consultation processes for any initiatives that will
materially affect the market and the individual rights of market participants.
The DOE notes that a number of the refinements and initiatives addressed in the Roles
and Mandates Paper, such as the role of the ISO and EUB in transmission, have already
been the subject of extensive stakeholder input and encourages these matters to be
finalized with certainty as soon as possible.
It should also be noted that the Roles and Mandates Paper consultation process was
expanded to incorporate other industry discussions and proposals, specifically with
ECL 13196-01
3
respect to the handling of the retail affiliate Codes of Conduct and load settlement rule
making. These additional initiatives also are being addressed on a consolidated basis in
this paper.
2.7
The Importance of Due Process
While the DOE has proposed certain refinements to Implementing Agency roles and
responsibilities, it is mindful of appropriate principles of due process and administrative
procedure to ensure certain essential stakeholder rights are protected. At the same time,
properly rendered decisions by any agency must be valid, avoid unnecessary delay and
duplication, and be enforceable, so that both stakeholders and agencies have certainty
about all market regulations, rules and orders.
2.8
A Sense of Urgency is Essential
Overall stakeholders agree with the DOE that there is a sense of urgency for all
concerned in clarifying agency mandates and speeding up applications and approvals in
this Province.
Specifically, there seems to be a consensus that, as an industry, we must respond quickly
and efficiently to meet the needs for infrastructure development so as to keep pace with
the growth of Alberta’s economy. Accordingly, agency bottlenecks, inefficiencies, and
duplications must be resolved so that transmission, generation, tariff and other
applications are efficiently processed, and facilities come on line in a timely fashion to
ensure reliability and adequacy standards continue to be met, and to support the economic
objectives of the Province.
PART 3:
A BALANCING OF PRINCIPLES
The DOE, in consultation and collaboration with the Implementing Agencies, seeks to
ensure that there is a proper balance of the following principles. It must be noted that
each principle for an agency may have a different weight under a given set of specific
circumstances, and at any given point in time of the evolution of the market.
3.1
Clear Legislative Empowerment, Combined with Sufficient Discretion
and Flexibility
The legislation and supporting regulations must spell out as clearly as possible the
mandate of each Implementing Agency as it pertains to its activities in the Alberta
electricity market, while permitting each agency the necessary discretion to allow it the
ECL 13196-01
4
flexibility required to address a range of situations which cannot be fully predicted in
advance by such legislation or regulations.
3.2
Expedient and Cost Effective Decisions
Decisions must happen in a timely and efficient manner. The costs for all parties must be
considered, and unnecessary review and rehearing of issues must be avoided.
3.3
Rule Consultations
Rule makers must seek input from stakeholders that are ultimately affected by the rules.
3.4
Transparent Process
Rule makers should strive to have a clear, visible and understandable decision making
process.
3.5
Enforceability
Decisions of each agency must carry the appropriate degree of weight, which may vary
depending on the nature of the decision and the mandate of the agency.
3.6
Procedural Fairness, and Reconsideration of Initial Decisions
Rule makers must ensure that stakeholder rights are addressed in the rule making process,
in an appropriate and practical fashion given the subject matter and the agency mandate.
As well, there must be a mechanism for reasonable access to a reconsideration or review
of an initial decision, particularly if the initial decision is an internal one.
3.7
Certainty and Consistency
Decisions should be as clear and as lasting as possible. The policy framework must be
implemented and administered consistently across Implementing Agencies with
complementary responsibilities.
ECL 13196-01
5
3.8
Independence and Respect
The mandate of an Implementing Agency as articulated and defined in legislation or
regulations, and its independent processes and determinations must be supported. Each
Implementing Agency must appropriately consider and pay deference to the decisions of
other agencies in their assigned areas of expertise.
3.9
Harmonization
Rule makers, including government departments, as much as possible should consolidate
and harmonize regulations, rules, orders and directives so as to avoid unnecessary
industry costs, duplication and other inefficiencies.
ECL 13196-01
6
PART 4:
SPECIFIC AGENCY REFINEMENTS
The DOE has reviewed each of the proposed refinements set out in the Roles and
Mandates Paper taking in to consideration Stakeholder Comments received to date. In
Part 4, the DOE sets out where it either affirms or modifies the initial recommendations
set out in that Roles and Mandates Paper.
4.1
Independent System Operator
4.1.1
Basic Role Description
Under Division 2 of the EUA, the ISO is responsible to provide for the safe, reliable and
economic operation of the interconnected electric system and to promote a fair, efficient
and openly competitive market for electricity. In addition to operating the power pool,
such responsibilities include the following according to Section 17 of the EUA:
1. To manage and recover the costs of transmission line losses.
2. To manage and recover the costs for the provision of ancillary services.
3. To provide system access service on the transmission system and to prepare an
ISO tariff.
4. To assess the current and future needs of market participants and plan the
capability of the transmission system to meet those needs.
5. To make arrangements for the expansion of, and enhancement to the transmission
system, and
6. To regulate load settlement.
Further Sections empower the ISO to make rules, charge fees, and issue and enforce
orders. It is within this context that the Roles and Mandates Paper sets out to clarify
certain functions, particularly with respect to the ISO’s relationships and interface with
the EUB.
4.1.2
ISO “Own Costs” Approval
Many stakeholders have made comments regarding the recommendation appearing in the
Roles and Mandates Paper that the ISO Board be given autonomous authority for
approval of the ISO’s administration, operation and management costs without further
review by the EUB. In summary, they suggest that:
a) the ISO exists pursuant to the EUA and is a not for profit entity, and its board
cannot be held accountable for imprudent decisions in the manner that the EUB
ECL 13196-01
7
holds “for profit” utilities accountable since there are no shareholders, and since
the agency is tasked to operate in the public interest
b) historically, there has been neither a transparent and efficient process at the ISO
for stakeholder input and review of such costs, nor an effective ISO mechanism
for stakeholders to go on record with respect to disputing the prudence of such
costs. Their only recourse has been to file a submission with the EUB once the
matter is set down for review by that agency.
c) certain industry reforms are already under development between the ISO and
certain stakeholders to grant interested parties input into the budget making
process.
The DOE objective in recommending that the ISO be responsible for its own costs was to
provide the ISO some degree of finality and certainty over those corporate, operational
and administrative expenses that the ISO understands and that should be more directly
under its control. These expenses should be determined without the prospect of undue
delay and uncertainty which can result when such matters are the subject of a protracted
reconsideration before a quasi judicial agency such as the EUB.
The DOE, however, fully recognizes the need for some form of checks and balances to
the budget proposals of the ISO and the resulting cost impositions on stakeholders. The
DOE therefore is encouraged by the formulation of the ISO Budget Review Committee
(BRC) which allows the subject costs to be scrutinized by the ISO and stakeholders in
advance of any filing with the EUB.
The DOE views the BRC - assuming it is robust, effective and materially representative
of stakeholder concerns - as having potential for significantly advancing a reasoned
determination of such costs for consideration and approval by the ISO board prior to any
filing with the EUB. The DOE expects the ISO to continue to refine the BRC so that it
produces results that are based on complete and valid information, are timely, and
meaningfully consider the input from the stakeholder representatives.
DOE Position
The DOE is of the opinion that the appropriate solution is to have ISO first consider
own costs matters through the BRC mechanism as a key consultation, and first level
prudence review and input process. This BRC process must continue to be
institutionalized by the ISO on an open and transparent basis, with the resulting BRC
recommendations being provided through the ISO executive to the ISO board for
approval. In that regard and with reference to Section 4.1.9 below, there also must be
an efficient and effective means of dispute resolution available within the ISO to deal
with residual budget related disputes.
ECL 13196-01
8
As a result, the DOE expects that, in the normal course of events, by the time such
budget items are filed with the EUB they will have had a thorough vetting and scrutiny
by interested parties, and thus it is less likely that major disputes will remain
unresolved. It then follows that in the normal course of events, the EUB should only
need to approve the allocation between customer classes of those amounts for ISO own
costs, which have been approved by the ISO board after BRC recommendation.
However, the DOE agrees with those stakeholders who have expressed concerns about
completely eliminating the EUB from a role in scrutinizing such cost determinations
on a last resort basis. The DOE now is satisfied that, with an active and effective BRC
and an efficient internal dispute resolution process, ISO own cost budget decisions can
be filed with the EUB, and it will only be on an exceptional basis that the EUB will
have to revisit a budget prudence matter.
As a result, the DOE will recommend an amendment to the Transmission Regulation
to the effect that, once the BRC processes are complete and the ISO board has
approved the subject budget items as filed with the EUB, such budget items will
normally be considered to be prudent, unless it can be demonstrated by an interested
party that the costs and expenses are obviously unreasonable.
Even when such an application for review is made, the DOE will expect the EUB to
give significant consideration to the deliberations of the ISO board on matters
requiring its particular technical expertise, and any decisions on the matter that may
have resulted in accordance with the ISO’s internal dispute resolution mechanisms.
4.1.3
Ancillary Services and Line Losses Costs Determination
On Page 2 of the Roles and Mandates Paper, and in keeping with the principles set out in
Part 3 above, the DOE reaffirmed that the ISO is the appropriate body to oversee the
determination of line loss calculations and ancillary service (AS) acquisition.
The determination of line loss volumes is a calculation, using settlement data and priced
at the pool price for the hour. The principles respecting loss factors and collection of
losses are already set out in the Transmission Regulation. Loss factors are forecasted by
the ISO and reconciled based on actuals. The loss factor methodology and calculations
are determined by the ISO for incorporation in to an ISO Rule.
Ancillary services are procured by the ISO on a competitive basis through a number of
market mechanisms including RFPs, bilateral negotiations, etc. The DOE is advised that
the ISO has been working with IPPSA, the MSA and other interested parties to provide
additional transparency and competition in its ancillary services procurement initiatives.
ECL 13196-01
9
DOE Position
The DOE affirms that the ISO has authority and control over the calculation and
determination of lines losses and AS costs. The forecasting of such losses and costs,
reconciliation to actuals and the methodology for reconciling accounts must in the first
instance continue to be determined by the ISO and approved by the ISO board. These
matters however must now be set out clearly in ISO rules. The ISO must give
stakeholders the opportunity for input and development of any such related rules.
Once line loss quantities and costs as well as AS costs are determined by the ISO and
approved by the ISO board, then it remains appropriate to have the EUB approve the
allocation between customer classes as a cost recovery mechanism under the second
part of a two-part rate design proceeding. The EUB will not revisit the forecasting or
reconciliation work completed by the ISO. In the case of AS procurement, the DOE
recommends that the ISO complete its consultations with interested parties which will
result in a more robust and transparent AS acquisition process. This process then must
be entrenched in ISO rules or business practices.
4.1.4
Transmission Must Run (“TMR”) Services
There has been a long and complex history in Alberta to bring a degree of finality and
certainty to the fair and reasonable pricing of TMR services. The DOE, the ISO, the
MSA and the EUB, and many stakeholders have attempted to arrive at principles that will
provide some form of lasting and effective guidance to the industry.
The DOE notes that, despite the lengthy debate and costly hearings before the EUB, to
date there is no resulting conclusive treatment. The DOE also notes that the ISO bilateral
negotiations on TMR valuation also have not produced results that are universal or
satisfactory on a lasting basis for the ISO or stakeholders. Yet all would agree that it is
critical for industry and the Implementing Agencies to have certainty about TMR
compensation fundamental principles and methodology.
DOE Position
As a result, and to provide market participants with more certainty, the DOE will
determine the treatment of TMR and the methodology for calculating compensation,
and recommend that these be included in a separate regulation.
ECL 13196-01
10
4.1.5 Determination of Need for Interconnections and Small Transmission Projects
Many stakeholders over the recent past have indicated that they felt that the approval of
transmission facilities in Alberta has sometimes been a needlessly long, complex and less
than cost efficient process. A key objective of the Roles and Mandates Paper was to
provide more clarity and certainty, as well as to expedite decisions and control costs for
stakeholders, related to transmission system needs applications.
The Roles and Mandates Paper proposed that the approval process could be segmented in
two categories: the first would include smaller, straightforward system enhancements and
customer interconnections, and the second would include larger transmission projects.
The small transmission projects could include maintenance enhancements, upgrading of
substations, or relocating transmission facilities, and may not be directly related to a
particular customer interconnection.
The Roles and Mandates Paper proposed that the ISO would review and approve the
needs determination for such smaller system upgrades or customer interconnections using
an abbreviated process determined in consultation with the EUB.
The Roles and Mandates Paper proposed that, once the need was approved, the task
would be assigned by the ISO to the appropriate Transmission Facilities Owner (TFO)
who would then seek EUB approval to recover prudent project costs. The EUB process
would not, however, repeat the review of the need for the project in the first instance. The
logic for this proposal was to provide stakeholders with an understanding that projects
would be approved in a timely and efficient fashion and without duplication.
Some stakeholders took the view that the ISO had not developed an appropriately robust
process for reviewing and approving small projects. Therefore, they felt that interested
parties needed the protection of the EUB quasi judicial processes.
The DOE notes that virtually all stakeholders, including the EUB and the ISO, agree that
small projects and customer interconnections should not be the subject of a long,
protracted and uncertain process, and that there is room for process improvement. It also
notes that the EUB, the ISO and the TFOs have been working collaboratively to agree
upon capital cost limits for small projects and customer interconnections that would not
require an application before the EUB if a given project fell below that level.
ECL 13196-01
11
DOE Position
The DOE remains of the view that it is the ISO which should determine the need for
these smaller projects and then file this determination with the EUB. The DOE
recognizes that the ISO and EUB have worked with stakeholders to streamline the
needs approval process for customer interconnections and small transmission projects
under $10 million. It encourages periodic review of this process for continuous
improvement, and whether the threshold of $10 million remains appropriate.
The DOE will direct the ISO and the EUB to continue to develop and refine the
process for approving small projects and customer interconnections, taking into
account stakeholder input. A key component of that process must be for the ISO to
establish a fair and transparent process for determining the initial need, and for
resolving disputes under the mechanism referenced upon under Section 4.1.9 below.
The DOE will recommend an amendment to the Transmission Regulation to entrench
the requirement for the EUB to provide directives for an expedited process, in
consultation with the ISO and other stakeholders.
With the implementation of such a process, TFOs would then only be required to
demonstrate to the EUB in an application that the expenditures had been incurred
prudently, prior to being allowed to include these costs in their rate base.
With respect to reconsideration of a initial smaller project needs decision by the ISO,
the DOE expects that with the initial decision the result of a fair and effective process
and with the ISO internal dispute resolution processes available to an aggrieved
interested party, on an expedited and efficient basis, the number of disputed decisions
will be substantially reduced. It follows that it should be much less likely that any
stakeholder will feel that they must have additional recourse to the EUB for relief from
such small project decisions as rendered by the ISO.
The DOE will also recommend that the Transmission Regulation be amended so that
such a small project needs decision by the ISO will be filed with the EUB for
information purposes only and the EUB will publish notice of the filing but will not
review the need in the ordinary course. Such a review by the EUB will only occur if an
interested party demonstrates to the EUB that the ISO determination was obviously
unreasonable. Even when such an application for review is made, the DOE will expect
the EUB to take significant note of any ISO decisions that may have resulted from the
ISO’s dispute mechanism.
ECL 13196-01
12
4.1.6 Determination of Need for and Approval of Larger Transmission Projects
In the case of larger projects, as stated on Page 3 of the Roles and Mandates Paper the
EUB would continue to have final review and approval for the larger, more significant
transmission developments, based on the initial transmission planning and facilities needs
determinations made by the ISO. The DOE has previously indicated in this paper that it
expects the EUB, to take into account the ISO’s mandated responsibility and its expertise
in identifying needs for such larger expansions and additions to the Alberta transmission
system.
DOE Position
The DOE is of the view that if the ISO, as a neutral, not-for-profit implementing
agency operating within its mandate and area of expertise, determines that a need for a
large transmission facility upgrade or addition exists, then the EUB will grant
substantial weight to such a determination.
Some stakeholders have indicated due to the size, complexity, economic impact and
longer range consequences of larger project applications, they must be treated differently
than smaller project applications from a procedural standpoint. They therefore advocate
that an interested party must be afforded the benefits of the more formal EUB quasi
judicial processes to protect their interests with regard to such larger project applications,
and that it would be inefficient, expensive and lengthy for the ISO to try and replicate the
EUB’s long standing and well tested processes.
DOE Position
The DOE agrees with these stakeholder comments. Nothing in the proposed
amendment to the Transmission Regulation will disturb the authority of the EUB to
approve large project needs determinations recommended by the ISO. Interested
parties will continue to have the right to intervene in a hearing made by the ISO.
However, the amendment will require the intervener to demonstrate to the EUB that
the ISO has been technically deficient, flawed or not in the public interest in some
material fashion in making the initial needs determination then under consideration by
the EUB.
These acknowledgements of the expertise of the ISO in making a needs determination
will only apply to the needs determination itself, and the technical suitability of a
proposed solution to meet a need.
The proposed regulatory amendment will not change the EUB’s responsibility for
approval of the prudence of a TFO to properly manage a transmission project.
ECL 13196-01
13
4.1.7
Collaboration between the ISOs, the TFOs and the EUB
As summarized on Page 3 of the Roles and Mandates Paper, under the current provisions
of the Transmission Regulation, the ISO is responsible to ensure the overall reliability of
the interconnected electric system and, that transmission facilities adhere to good utility
practice and international reliability standards. It went on to observe that the ISO and the
TFOs should work closely together in a number of areas, including TFO system operation
and overall transmission facility availability. It further recognized that standards for
system maintenance are currently not uniform across all TFOs, nor do the TFOs follow
common practices for system emergency preparedness.
The DOE considers it essential that such standards and practices be harmonized and
made universal, whenever possible.
With this context, it is important that the ISO continues to ensure Alberta meets or
exceeds international mandatory reliability standards, including standards developed by
an the Electricity Reliability Organization certified by the Federal Energy Regulatory
Commission in the US, or its regional entity, the Western Electricity Coordination
Counsel.
It follows that the ISO be affirmed as the Implementing Agency which is responsible and
has the authority for setting and enforcing maintenance and reliability standards in
Alberta. To that end, it was proposed on Page 4 of the Roles and Mandates Paper that the
ISO establish a committee to work with TFO representatives to develop common
maintenance and reliability standards, including a framework for ISO monitoring and
compliance enforcement of approved maintenance standards. The DOE also considers
that, in approving of electric utility tariffs, the EUB will recognize these common
standards, and make provision during its hearing process for the ISO to provide input
concerning TFO compliance with the standards, should this be required.
As a general principle any activities entered into by the TFOs in complying with any new
and uniform standards set by the ISO must be considered to be necessary by the EUB.
The TFOs must not face undue regulatory risk for compliance with standards developed
by the committee, necessary to ensure reliability, and therefore not within the TFO’s
direct control. This does not in any way diminish the EUB authority and responsibility to
review and determine the prudence of any costs incurred by TFOs and proposed for
recovery in their tariffs.
To further ensure the integrity of the work of the committee, the DOE suggests that the
EUB would not be expected to dispute the standards that already had been developed
through the committee process unless a stakeholder could present a compelling case that
the standards are in error. The EUB would, however, continue to assess the prudence of
any expenditure incurred before it can be added to the rate base.
The DOE went on to state in the Roles and Mandates Paper that this ISO committee must
work with TFO representatives to identify where the ISO can delegate responsibility to
ECL 13196-01
14
the TFOs for regional and local transmission planning, and that ISO committees
established to address technical considerations will need to include participation or
monitoring by Distribution Facility Owners (DFOs) where there is an impact on them.
Stakeholders generally agreed with the DOE position on the need for close cooperation
between the ISO and the TFOs (and DFOs) and that some delegation by the ISO was
efficient and warranted to allow the TFOs (and DFOs) to effectively deal with regional
and local transmission work, provided that the ISO maintained its oversight
responsibilities. They also supported the idea of a committee to develop common
reliability and maintenance standards, referenced above.
Other issues common to the TFOs may also be helped by the creation of ISO committees
including the development of a framework for approval of tariffs. This framework, some
have noted, must be flexible to take in to account some discrete differences in standards
in accordance with such factors as urban versus rural criteria, etc.
DOE Position
The ISO is the Implementing Agency which is responsible and has the authority for
setting and enforcing maintenance and reliability standards in Alberta.
The DOE is encouraged that, as of this date, the ISO has proceeded to form a
maintenance and reliability standards committee (MRSC). The DOE is satisfied that
the formation of the MRSC is evidence of the greater co-operation between the ISO,
EUB, TFOs and DFOs to develop enforceable standards to improve the reliability of
the system, the effectiveness of the regulatory process, and the ability of the sector to
respond in emergency situations. The product of such work is expected to appear in the
form of new ISO rules governing reliability, maintenance and security.
A requirement for the ISO to continue to pursue these types of collaborative activities
will be included in an amendment to the Transmission Regulation. There will also be
an obligation on the ISO to meet with stakeholders and establish business practices
regarding the process for delegating some planning functions to the TFOs and DFOs.
These business practices must be completed and entrenched no later than October 31,
2006 and involve EUB input and consultation.
4.1.8
ISO Stakeholder Consultations
The DOE indicated on Page 4 of the Roles and Mandates Paper that it expected the ISO
to continue to develop stakeholder consultations processes which were inclusive, open
and meaningful. The establishment of the Transmission Advisory Committee, the MRSC
and the BRC are examples of significant progress made to date. Other examples include
the consultation processes set up on Long Term Adequacy matters, and the Northwest
transmission planning consultations.
ECL 13196-01
15
In reviewing Stakeholder Comments on this topic, the DOE observes that most
stakeholders generally agree that the ISO recently has made progress in developing its
stakeholder consultation processes. The DOE does note that some stakeholders have
made suggestions about the lack of formality or standardized guidelines for ISO
consultation processes.
While standardization is likely not appropriate for all issues, there are some principles
that the DOE would expect the ISO to adhere to universally in setting up a given
consultation process, so that participating stakeholders are aware of the manner in which
they will be consulted and how the value of those consultations will be reflected in ISO
work products and outcomes.
Some requirements are:
1. Timely notice of the consultation process, and the manner of participation.
2. Clear articulation of the use made of stakeholder input.
3. Development of a project plan approach which indicates the points at which
stakeholder input will be sought and the manner in which it will be sought.
4. Description of the factors that will or will not be influenced by stakeholder input.
5. Time lines for project completion, finalized in consultation with stakeholders
taking in to account other ISO initiatives and those of the DOE and other
agencies.
Also, when the ISO publishes its determinations, rules or other outcomes, it should
acknowledge stakeholder input and indicate in general terms the manner in which it has
considered that input in arriving at its determinations.
DOE Position
The DOE believes it is particularly important that the ISO continue to develop
stakeholder consultation processes with transparent, inclusive and meaningful
characteristics. In certain circumstances, is very well may be necessary that the ISO
board be open to receiving stakeholder presentations. The ISO board must fairly
consider the various stakeholder positions and apply a balanced perspective. These
requirements for effective ISO stakeholder consultations will be reflected in
amendments to the Transmission Regulation.
4.1.9
Dispute Resolution Process
Page 5 of the Roles and Mandates Paper made reference to the need of the ISO to have
the willingness to address disagreements with stakeholders over matters such as standards
development, line loss calculations and other issues materially affecting the rights of
stakeholders.
ECL 13196-01
16
Many stakeholders and the ISO agreed that occasionally there will be disputes over initial
ISO determinations, regardless of how fair a process may be. Accordingly, there needs to
be an effective appeal or dispute resolution mechanism. Some stakeholders noted that a
form of “appeal” to the EUB of ISO rules or orders already is entrenched in Division 3 of
the EUA. Therefore, they argue, there is no need to set up a parallel process within the
ISO because it will be inefficient and redundant to try and replicate the procedural
fairness checks and balances entrenched in current EUB quasi judicial processes. Others
have indicated that there may be efficiencies gained if the ISO develops a form of
expedited dispute resolution process for matters that are within its area of expertise.
The DOE is of the view that there is significant merit in the ISO developing such an
internal dispute resolution process for those matters that lend themselves to being
resolved efficiently and effectively without the need for a full blown quasi judicial
process, or recourse to the Division 3 complaints process in front of the EUB.
In addressing Stakeholder Comments, the DOE would expect that the ISO internal
dispute resolution process to spell out for stakeholders the matters that are eligible for
appeal under such a process, and also address the following principles:
•
•
•
•
The review process must be seen to be fair and objective.
The stakeholder seeking relief must know and understand the process for
making representations on appeal.
The matter must be dealt with thoroughly and in a timely manner. Decisions
must be made quickly and clearly, so that those stakeholders allowed further
recourse to the EUB can do so within a reasonable time frame.
The ISO must provide written reasons to the stakeholder with respect to its
ruling on the dispute.
The DOE would expect the ISO to develop and define rules through a stakeholder
process for its dispute resolution mechanism. The DOE notes that the ISO has certain
elements of such a process already in its existing Rule 11, including the potential use of a
subcommittee of ISO board members.
In addition, the DOE clarifies that it is not advocating the development of such a dispute
resolution process as a substitution for the right to deal with complaints afforded
participants under Division 3 of the EUA. Such recourse will continue to exist.
This ISO dispute resolution in general should be considered in consultation with
stakeholders and the EUB to ensure it is contemporary and meaningful to deal with the
current and proposed matters within the ISO franchise, captures the principles articulated
in Part 3 above and also fits within the recourse afforded stakeholders under Division 3 of
the EUA.
ECL 13196-01
17
DOE Position
The DOE will recommend an amendment to the Transmission Regulation to
require the ISO to establish processes to resolve disputes arising out of the ISO’s
activities. The ISO concurrently will be expected to seek stakeholder input and
develop a detailed proposal for such a mechanism no later than October 31, 2006.
The ISO will be required to develop a process which achieves procedural fairness,
speed and equity for stakeholders, but is not expected to replicate the quasi judicial
elements which characterize the EUB mandate. The DOE expects that the ISO can
achieve that objective with meaningful input from the EUB and stakeholders so as
to avoid duplication, delays and confusion.
4.1.10 System Settlement Code: Rule-Making Authority
Some stakeholders have noted that there is a significant requirement for convergence in
the handling of electricity and natural gas issues. This is particularly true with regard to
the development of a settlement code for natural gas and the development of the Tariff
Bill Code (TBC) for electricity and natural gas, both of which are being managed by the
EUB.
The suggestion was made to have consistent oversight of all the rules and codes that deal
with data processes arising from meter reads in order to address common issues in one
forum, and to ensure that the evolution of codes would occur in an efficient way as the
market develops. The proposed solution would have oversight of the settlement system
code (SSC) moved to the EUB.
In addition to considering Stakeholder Comments on the matter, the Department met with
interested stakeholders and the ISO on February 24, 2006, at which time the stakeholders
elaborated on the issues raised.
The main points made by stakeholders were:
1. Need for harmonization between and across initiatives for the TBC and settlement
initiatives (for both electricity and natural gas settlement).
2. Risk that industry will not be allowed to recover costs in the rate base for costs
they were obliged to incur to meet standards for the ISO.
3. Limited progress on ISO-initiated settlement system code improvements.
Industry comments regarding the oversight of the SSC did not extend to the ISO’s role in
performing financial settlement of the market, which has been strongly supported and
affirmed. The current proposal would only see oversight of the rule-making and rulemaintenance functions moved to the EUB on a consolidated basis. One stakeholder has
suggested that recent changes made in the structure and organization of the ISO will
improve the response of the ISO to industry concerns.
ECL 13196-01
18
The DOE notes that most stakeholders generally support the principle of harmonizing the
electricity and natural gas retail markets to improve efficiency when performing similar
functions. While not all participants expressed a need to have the oversight of the SSC
moved to the EUB, the majority supported that view. If oversight of the rule-making
function for the SSC were to be moved from the ISO to the EUB, some industry
representatives pointed out the potential to lose momentum on initiatives recently begun,
and the potential to introduce uncertainty into the market because of additional changes
brought on by such a transition.
Some stakeholders have proposed that the project management model currently being
used by the EUB for the development of the TBC would be a suitable model for
managing SSC refinements. One industry participant was less supportive of the project
management process for the TBC, suggesting that the solution has been “consultantdriven”. Still, the EUB experience with this model, combined with the fact that the TBC
is essentially complete, lends support to the idea that now is the right time to move
oversight of the SSC to the EUB.
Load balancing and settlement functions for the retail natural gas industry are currently
being considered in an EUB process, providing increased impetus for moving the SSC
rule-making authority to the EUB.
The ISO is responsible for both regulating and administering load settlement, according
to Section 17 of the EUA. The rationale for placing both the responsibility to regulate and
administer load settlement with the ISO was that, as system operator, the ISO has the
most holistic view of the province’s electric system. This benefits the load settlement
coordination role. Given the obligation to undertake load settlement, the ISO was
considered at the time the most suitable location for the regulatory functions as well.
The DOE is of the opinion that the need to converge electricity and natural gas load
settlement along with the tariff billing codes for both commodities have emerged as
compelling reasons to move responsibility for the Settlement System Code (SSC) to the
EUB.
DOE Position
The need to ensure significant coordination between TBC, natural gas load settlement
and electricity load settlement, and to have a mechanism to ensure that ongoing
refinements to the Codes are carried out efficiently, suggests to the DOE there is a
rationale for having one body oversee the development of all codes.
Since the ISO has no role in the natural gas market, it makes sense to gather all these
regulatory functions under the EUB, which already is responsible for TBC and
settlement for natural gas markets. Therefore, the DOE’s view is that moving the
responsibility for regulating load settlement to the EUB is appropriate, and regulatory
changes to that effect will be recommended.
ECL 13196-01
19
The Department notes that such a new arrangement will create new challenges for the
industry, ISO and EUB, as they work together to ensure that the needs of the market
are met in a timely and efficient manner. To that end, the department suggests that the
needs of the ISO in settling the market be considered paramount over the needs of
individual market participants, and the EUB will be required to carefully consider the
expert opinion of the ISO and other stakeholders while deliberating on issues that
affect settlement.
The DOE also notes the potential for losing the momentum that the ISO has achieved
in their initiatives and expects all parties to work cooperatively to maintain this
momentum to the extent possible during the transition of this function to the EUB. The
DOE therefore directs the EUB and ISO to consult with industry and to collectively
plan for this transition as soon as practicable. A transition plan must be prepared for
consideration by the Department and industry by October 31, 2006.
The DOE has noted the strong support for the continuation of the ISO role in financial
settlement of the market, and confirms that this responsibility remains with the ISO.
In addition, the ISO will remain responsible for the audit and enforcement functions of
the system settlement code.
ECL 13196-01
20
4.2
Market Surveillance Administrator
4.2.1
Basic Role Description
Section 49 of the EUA specifies that the MSA has the mandate to carry out surveillance
and investigation in respect of the supply, generation, transmission, distribution, trade,
exchange, purchase or sale of electricity, electric energy, electricity services or ancillary
services, or any aspect of those activities. In carrying out these duties, the MSA must
assess whether or not:
1. The conduct of market participants is consistent with the fair, efficient and openly
competitive operation of the market,
2. The person carrying out the conduct has complied with or is complying with the
EUA, the regulations, the ISO rules, market rules and any arrangements entered
into under this Act or the regulations, and
3. The ISO rules are sufficient to discourage anti-competitive practices in the
electric industry and whether the ISO rules facilitate the fair efficient and openly
competitive operation of the market.
Some stakeholders have expressed the view that the role of the MSA is to react to what it
sees as anti-competitive market behaviour and that the MSA should not provide proactive
guidance to the market. They feel that the MSA should be restricted to investigating
potential behavioural wrongdoing by a given participant when it actually is seen to occur.
The DOE however sees merit in having the MSA provide proactive guidelines to the
market so as to give participants some view on expectations with respect to trade and
transactions in a manner that is consistent with a competitive market. Within that context,
the DOE is mindful that many stakeholders have raised issues about how to properly
develop and enforce MSA guidelines.
4.2.2
Guidelines
As mentioned, the recommendation in the Roles and Mandates Paper to mandate
compliance with MSA guidelines (Guidelines) has resulted in significant discussion
among stakeholders. The DOE agrees with stakeholders that it is prudent to clarify the
intent of Guidelines, while reinforcing that the process of clarifying the development and
purpose of such Guidelines is not meant in any manner to diminish the MSA’s mandate
under Section 6 of the EUA.
The MSA is uniquely positioned to monitor and evaluate the overall state of competition
in the Alberta electricity market. Section 49(1) of the EUA outlines the mandate of the
MSA and refers to the MSA functions of “investigation” and “surveillance”. However,
ECL 13196-01
21
the establishment of Guidelines is already an important part of the EUA as it stands
today. Section 49 indicates that the MSA may establish Guidelines. It therefore is the
DOE’s view that the legislature has expressed a clear intention to have the MSA
proactively provide guidance to the market through the use of Guidelines.
(a)
The Nature of Guidelines
After reviewing the comments of stakeholders, the DOE is of the opinion that
clarification on the nature and use of Guidelines would be beneficial. Guidelines are
already contemplated in the EUA. In the first instance, Guidelines are not rules or law.
They are interpretations of the existing statues, regulations and rules given for the
guidance of market participants. Even though they are not rules or law, there is general
consensus that they can be an important communication of the market structure.
Most market participants agree that there must be a method for turning these Guidelines
into rules or law where it is appropriate to do so. There are at least three obvious paths
for a Guideline to migrate to something with more force than an “interpretation for
guidance.” A Guideline may remain a Guideline and never migrate to something more.
However, depending on the nature of the Guideline it may;
1.
be codified in regulation in accordance with the normal operation of that
process,
2.
be codified in an ISO rule in accordance with the normal operation of that
process, or,
3.
be judged before a tribunal, and if upheld, have force and effect because it
has become precedent through case law.
DOE Position
The DOE agrees that the main purpose of Guidelines is to provide the MSA’s informed
guidance on expectations as to how participants should transact and operate in the
Alberta electricity market in a manner that is fair, efficient and openly competitive.
Guidelines, in and of themselves, neither are meant to have the rule of law, nor to have
the full force and weight of legislation or regulations. They also can be differentiated
from the rules and the rule making process of the ISO.
Guidelines however, given their express legislative standing, are intended to provide
meaningful guidance and direction to the industry. Such guidance is of assistance as
the Alberta electricity market continues to unfold and evolve.
(b)
Stakeholder Consultations in Guideline Development
There is general stakeholder consensus that it is appropriate for the MSA to consult with
them on the development of Guidelines. The DOE concurs that stakeholders should be
consulted as Guidelines are developed.
ECL 13196-01
22
DOE Position
The DOE will recommend that the Market Surveillance Regulation (“MSA
Regulation”) be amended to include the requirement for the MSA to develop and
implement stakeholder consultation procedures to receive and consider input on the
content and impact of any proposed Guideline – a “Guideline development process.”
Stakeholder consultation must be completed prior to the publication of any additional
Guidelines over a particular subject matter of concern to the MSA. In addition, the
DOE will require the MSA to have completed consultation with stakeholders and
published such a “Guideline development procedure” no later than June 15, 2006.
As a further part of its ongoing consultations, the MSA will be directed to work with
the DOE and stakeholders to create a process to determine whether future Guidelines
should be recommended to the ISO for treatment as a market rule, be recommended to
the DOE for treatment as a regulation, or be left to a tribunal, to be treated as specified
by either section 4.2.2(d) or section 4.2.6 below.
(c)
Regulations Governing Market Behaviour
Consistent with Section 4.2.2 above, one appropriate disposition for an appropriately
formed and vetted Guideline is that it be captured in a regulation, and thus come to have
the force and effect of law.
Some stakeholders commented that giving the MSA authority to develop, amend or
modify Guidelines and the authority to interpret and enforce the Guideline places too
much authority in one agency without appropriate checks and balances. As noted above,
some market participants feel that such Guidelines, if they are to be legally enforceable,
should be converted into ISO rules or DOE regulations, to ensure they are subject to fair
process, sufficient stakeholder consultation and the relative drafting precision that occurs
when regulations are developed.
After considering the merits of the issues raised, and within the context of other reforms
in this Paper, the DOE agrees with stakeholders on this matter.
DOE Position:
The DOE’s view is that the restriction of, or prohibition against, certain unacceptable
market behaviour may be captured in a form of a MSA Regulation amendment or
additional EUA authority. As the first example, the DOE supports the position that the
essential provisions of the “Trading Practices Guidelines and Information Disclosure
Procedure” published by the MSA in 2004 have been appropriately formed and vetted
and should be the first of the behaviour restrictions entrenched in regulation.
Accordingly, the DOE will draft an amendment to the MSA Regulation for review by
stakeholders to move this Guideline into regulation.
ECL 13196-01
23
(d)
Filing of Guidelines with a Tribunal
In considering the discussion about Guidelines, the DOE notes that Section 67 of the
EUA contemplates that a Tribunal has the discretion to consider Guidelines in its
deliberations, but it is not mandatory that they do so. The DOE is of the view a Tribunal
must consider Guidelines, particularly after they have been subjected to a thorough
stakeholder review and consultation process, as will be required in accordance with
Section 4.2.2 (b) above.
DOE Position
The DOE therefore will recommend an amendment to the MSA Regulation to require a
tribunal to consider an applicable Guideline in its deliberation. The amendment will
not specify the weight to be given to the Guideline as that will remain at the discretion
of the tribunal, but only that the tribunal appropriately consider them in making its
decision.
4.2.3
Conduct Compliance Plans
Stakeholders generally agree that there must be some form of monitoring of, and
direction to, those participants in the Alberta electricity market who have grown to a size
that they can potentially affect the fair, efficient and openly competitive operation of the
market, even with the best of intentions and behaviours.
Very recently, the DOE eliminated the PPA volumetric holding restrictions. This was
done with the express expectation of immediately replacing this important market power
mitigation mechanism with a more effective and targeted mechanism. The MSA and the
DOE have proposed the use of a conduct compliance plan as an alternate mechanism to
provide proactive guidance and direction without the requirement for holding restrictions.
The DOE maintains the view that there is a need for such a mechanism and that it is
preferable to volumetric limitations and restrictions.
It is important to note that the concept of a conduct compliance plan is not new and is
already allowed under the existing statutory framework in the EUA. The DOE is not
proposing any new authority be created in this regard. Specifically, Section 67 4 (b) of
the act reads: "The tribunal may impose any terms and conditions that the tribunal
considers appropriate on the market participant relating to the supply, generation,
transmission, distribution, trade, offer, exchange, purchase or sale of electricity, electric
energy, electricity services or ancillary services."
It is also important to note that a retail conduct compliance plan, approved by the MSA,
is already a statutory requirement for those wire companies that have affiliated retailers.
This is required to assure the fair, efficient and openly competitive operation of the retail
market. It is not required of all retailers, but only those who meet certain conditions. In a
ECL 13196-01
24
similar vein, conduct compliance plans for wholesale market participants that meet
certain conditions will be necessary to assure fair, efficient openly competitive operation
of the wholesale market.
The DOE acknowledges the need to have certainty as to when a compliance plan will be
required, as not all participants may be required to have one. The MSA must first work
with stakeholders to develop the principles that will govern the need and content of
conduct compliance plans.
After such a “compliance plan Guideline” is created, then compliance plans will all be
based on the same set of principles and aimed toward the same outcome, even though
each plan must remain flexible enough to deal with the unique nature of the market
participant’s specific and unique asset portfolio.
An important specific application of the compliance plan concept is the upcoming
Balancing Pool sale of Genesee PPA capacity. There are a number of possible outcomes
of this auction which would require a market participant to have a conduct compliance
plan. Fairness to bidders dictates that these conditions be known in advance and that the
specific evaluation criteria be published in advance. This is more fully explained below
under the Balancing Pool section.
DOE Position
The DOE will recommend that the MSA Regulation be amended to enable the MSA to
determine that a conduct compliance plan is required where there is the potential for
the actions of a particular market participant, whether intended or unintended, to
materially affect the fair, efficient and openly competitive operation of the market.
Such a determination would be followed by the creation of the compliance plan by the
MSA and the affected market participant. If the market participant disagrees as to the
need for a compliance plan, or its content, the matter may be referred to a tribunal for
determination.
The amendment will also specify that a compliance plan will be mandatory for any
market participant who controls over 20 percent of Alberta generation and inter-tie
capacity. The MSA also will have discretion to make a determination of the need for a
compliance plan for market participants that control less than 20 percent, if
circumstances so warrant. As noted above, if a market participant does not agree to a
compliance plan, then the MSA will have recourse to the tribunal process for a
determination of the matter.
In addition, the DOE will recommend a complementary amendment to the Balancing
Pool Regulation to enable the MSA to require a compliance plan, determined on a case
by case basis, as a condition of a completed sale of the Genesee PPA capacity.
The DOE will also recommend that the MSA Regulation contain an amendment which
will require the MSA to conduct stakeholder consultations with the objective of
ECL 13196-01
25
determining key procedural and substantive elements that should be included in the
formulation of conduct compliance plans and to create a “compliance plan Guideline.”
These consultations must be completed no later than August 31, 2006, so as to ensure
they may be operational in advance of the upcoming auction of the Genesee PPA
capacity.
A summary of MSA stakeholder consultations therefore is as follows:
a)
On the general process and content of implementing Guidelines, to be
completed by June 15, 2006;
b)
On key procedural and substantive elements of a conduct compliance plan
process, to be completed by August 31, 2006.
4.2.4
Publishing by the MSA
As mentioned above, Section 49(1) of the EUA sets out the fundamental mandate of the
MSA to carry out surveillance and investigation, while Section 50 requires the MSA to
do so in a fair and responsible manner.
When the MSA is involved in surveillance or investigation activities, the results of which
may be of material importance to participants, it inevitably will be faced with the need to
balance two basic interests. On the one hand, it may feel compelled to inform the public
and the market as to its findings so that they can be appropriately guided in their
decisions. On the other, it must be sensitive to commercial information, market strategies
and perhaps more importantly, the corporate reputations and public perceptions of any
participant who is explicitly or implicitly identified in a communication by the MSA.
The DOE notes that the challenge to balancing such interests has been addressed in other
jurisdictions. Agencies with mandates roughly analogous to the MSA, such as Market
Surveillance Panel under the Ontario Energy Board and the Ontario Securities
Commission, have been granted the authority to publish the results of investigations and
other material reports, but only after there has been such a balancing of interests, and all
prudent steps have been taken under the circumstances to consider the interests of any
named party.
The DOE remains of the view that it is in the public interest to publish reports, including
notification of the commencement of an investigation or the results of a completed
investigation which may include the identification of certain parties provided that there
has been appropriate consideration of the balance of interests.
The DOE will require the MSA to comply with certain necessary checks and balances
prior to the disclosure of the name of a participant or the identification of commercial
information.
ECL 13196-01
26
DOE Position
The DOE will recommend an amendment to the MSA Regulation which will affirm
the MSA right to publish the commencement or results of an investigation, or a report
resulting from its surveillance of market activities, including the identification of
individual parties where warranted. However, the amendment among other things will
require the MSA to consult with stakeholders to develop the appropriate checks and
balances between the rights of the individual and the rights of the market, and to
consider the implications to the market participant if the MSA proceeds to publish any
record identifying the participant by name.
4.2.5
Affiliated Retail Codes of Conduct
The DOE has recognized the benefits and efficiencies which occur for all participants,
particularly those active in Alberta retail markets, when there is convergence and
standardization of rules and procedures for retail natural gas and electricity.
Recent initiatives to further this goal include introduction of a tariff billing code which
will apply to both commodities, standardization of the procedures for obtaining historical
consumption information with the consent of the consumer, standardization of plain
language contracts, and consolidation of electricity and natural gas marketing regulations
under the Fair Trading Act.
The rationalization of settlement rule making referred to in Section 4.1.8 above is further
evidence of the DOE’s commitment to sponsoring practical and effective convergence
solutions.
The Roles and Mandates Paper recommended further rationalization of the roles the MSA
and the EUB and their specific responsibilities with respect to the various codes of
conduct for electricity and natural gas.
By way of follow up, on Dec 13, 2005 the DOE released draft regulations and a proposed
related amendment to the Gas Utilities Act for comment. The essence of these
recommendations was to give the MSA and EUB Chair-appointed tribunal oversight over
the gas retail market, much as they have for the electricity retail market.
Stakeholder responses were directionally favourable in terms of the overall objectives of
rationalization, clarity and efficiency, but some stakeholders indicated that the proposed
change could represent a significant change to the operating environment of the retail
industry in Alberta, in that it would require the MSA to take responsibility for matters
currently residing under the mandate of the EUB.
Stakeholders, cited the relative success of existing EUB oversight of the inter affiliate
code. They went on to suggest that the discrete affiliated retail code of conduct auditing
functions on an integrated basis more practically should reside under the jurisdiction of
the EUB and that if dual, parallel functions are implemented it could result in
ECL 13196-01
27
inefficiencies in retail compliance plans and audits, overlap, inconsistencies and
unnecessary costs.
They went on to advocate that the EUB be empowered to perform retail gas and
electricity code of conduct audit and compliance functions, while MSA be reaffirmed as
performing its market surveillance over wholesale and retail electricity. Stakeholders, for
the most part, were amenable to the expansion of the MSA surveillance responsibilities to
include participant behaviour in the retail natural gas market.
DOE Position
The DOE agrees that the rationalization proposed by stakeholders is most in keeping
with many of the principles outlined above. The DOE specifically agrees that it must
ensure that the areas of responsibility of the MSA and the EUB are aligned with their
expertise and mandates.
The DOE agrees that the EUB must be affirmed as responsible for addressing practices
that affect EUB regulated rates and/or services to customers, while the MSA is
responsible for addressing conduct that affects fair, efficient and openly competitive
operation of retail markets. It also agrees that a premium should be placed on
administrative simplicity and certainty, and that accordingly there should be only one
entity responsible for retail code compliance plans and auditing.
The DOE will recommend an amendment to applicable regulations and legislation, if
necessary, whereby the EUB will have responsibility for administering the retail code
of conduct regulations for entities regulated by EUB, and their affiliates. The
regulatory amendments further will ensure that the MSA will continue to have
surveillance responsibilities over retail electricity matters, and its mandate will be
expanded to include retail, but not wholesale, natural gas market behaviour. For
clarity, the MSA would continue to be responsible for administering retail code of
conduct regulations for entities not regulated by EUB, such as REAs, certain
municipalities and their affiliates.
To achieve their respective objectives, the DOE will require the MSA and the EUB to
co-operate effectively, and maintain a high degree of communication, and regulatory
text may specify this. Where the same behaviour affects both regulated customers and
competitive markets, the EUB and MSA must co-operate in referring matters to each
other while carrying out their own appropriate processes. For example, it would be
expected that, if and to the extent the EUB uncovers anti competitive behaviour in the
course of conducting its audits, that matter promptly must be brought to the attention
of the MSA for appropriate action.
ECL 13196-01
28
4.2.6 Recourse for MSA Determinations
Division 4 of the EUA sets out a tribunal structure under which the MSA may request
that the Chair of the EUB constitute a tribunal to hear a matter of material significance to
the MSA, and not otherwise resolved between the MSA and a market participant.
In the context of Stakeholder Comments raised about the mandate of the MSA and its
related Guideline development process and procedures, some stakeholders have voiced
the need to ensure that the decision making process of the MSA is robust, as well as fair
and equitable, recognizing the need to balance such principles with discretionary powers.
With respect to Stakeholder Comments about Guidelines, they are of the view that
complaining to the Chair of the Board about MSA conduct, as is currently their right
under Section 73 of the EUA, may not be a sufficient remedy in the context of a
published Guideline, and does not provide an appellate form of checks and balances with
respect to the contents or application of a Guideline which is afforded the MSA when it
requests that a Tribunal be constituted.
On the matter of Guidelines, the DOE recognizes the merits of giving participants access
to the Tribunal process, as an objective impartial higher level appeal or adjudication with
respect to being subjected to a Guideline.
DOE Position
The DOE therefore will recommend an amendment to the MSA Regulation to enable
the Chair of the EUB to constitute a Tribunal, in response to a complaint from a
market participant concerning the implementation of a Guideline. The Chair otherwise
would retain its discretion to dismiss a complaint or to select another form of dispute
resolution if the situation so warrants.
4.2.7
Negotiated Outcomes
In the Roles and Mandates Paper, the DOE described in some detail the benefits to
having the MSA and a market participant enter in to an agreement which resolves
disputes prior to the invocation of a tribunal to address whether a participant had engaged
in undesirable conduct, or any other such matter under the jurisdiction of the MSA.
This form of negotiated resolution could include monetary restitution or “penalty”
payment agreements that result in money being paid into the Balancing Pool. After
considering comments from stakeholders, the DOE is satisfied that there remains
sufficient merit with proceeding to include this in an amendment to the MSA Regulation.
ECL 13196-01
29
DOE Position
The DOE will proceed to include in the amended MSA Regulation a provision that
enables the MSA to enter in to such settlements on terms mutually agreed to by the
MSA and the subject participant, as an alternative to providing notice to the Chair of
the EUB to constitute a Tribunal under Section 59(1) of the EUA.
ECL 13196-01
30
4.3
Alberta Energy Utilities Board
4.3.1
Basic Role Description
Of the Implementing Agencies, the EUB is only one empowered by statute and
constituted as a true quasi-judicial tribunal. It has fully developed and detailed hearing
processes with extensive stakeholder participation and adjudication process. It has earned
a significant reputation for championing due process and reasoned decisions throughout
North America.
The DOE and stakeholders are respectful of the processes set up by the EUB to ensure
that matters are dealt with fairly and that those with a material interest in outcomes feel
that they have had the opportunity to be heard. As referenced in the Roles and Mandates
Paper, the DOE recognizes that the restructuring of the electricity industry has presented
significant challenges to the EUB in evolving its role to regulate the safety and services
of those entities under its jurisdiction, while supporting the entry of other new agencies
and the development of competitive market for wholesale and retail electricity.
4.3.2
EUB Consideration of Decisions by the ISO
A key theme of the Roles and Mandates Paper is to ensure coordination and
rationalization of the roles of the agencies to ensure the industry has clear and concise
decisions, and is not caught up in duplication, redundancy and unnecessary costs. It was
within that context that the DOE made reference to the need for the EUB to acknowledge
the legislated role and reliability mandate of the ISO.
One benefit of the discussions which resulted from the publication of the Roles and
Mandates Paper is that there has a been a broad exchange of information and ideas about
how the agencies like ISO and the EUB can work more effectively together in guiding
and directing the industry. In this paper the DOE has also referenced the various joint
committees that have been constituted to ensure the EUB, the ISO and effected
stakeholders are arriving at solutions as a result of their collective efforts.
DOE Position
The DOE appreciates that there are a number of consultative processes underway
between the EUB and the ISO and that interested stakeholders also are working within
them to ensure that their needs are addressed. As referenced in Section 4.1.9 above, the
DOE is also directing the ISO to revisit its internal dispute resolution mechanism to
ensure that affected stakeholders will have an avenue of recourse within the ISO
processes for any determination within its jurisdiction.
ECL 13196-01
31
The DOE continues to be of the view that there will be quicker and more efficient
outcomes for all concerned if as a result of these consultative processes there is
appropriate and balanced deference and weight given to the ISO decisions within its
mandate and area of expertise. The specific regulatory recommendations set out under
Section 4.1 above are intended to achieve that objective.
4.3.3
Appropriate Rates of Return
The DOE received many comments from stakeholders regarding the need to develop
directions to the EUB about what should be considered by the EUB as it deliberates on
rates of return matters before it from time to time.
The DOE observes that the electricity market in Alberta, while healthy and robust, is
evolving and that all decision makers, including the MSA, EUB, ISO and the Balancing
Pool, must be mindful of the impact of their decisions on the investment climate in the
province. Maintaining such a healthy climate is a key priority, as the industry develops.
At the same time, there has been significant concern expressed that it is not necessary for
the DOE to enact a regulation to direct the EUB on such matters.
DOE Position
The DOE is now satisfied that its concerns have been articulated and concurs with
stakeholders that it is most helpful to the development of a stable investment climate for
the EUB to continue to develop sound and practical precedents on rate of return
matters through its current application and decision making procedures. The DOE
therefore will not proceed to deal with this subject matter in regulation.
4.3.4
180 Day Time Line
Another matter which generated significant discussion among stakeholders was the
statement in the Roles and Mandates Paper about “…creating a 180-day timeline for
approval by the EUB of the GTA submissions for the ISO, TFOs and DFOs “.
Discussions have also included a 180-day bench mark for Permit and Licensing
applications.
While many stakeholders approved of the direction of limiting General Tariff
Applications (GTAs) and Permit and Licensing Applications (P&Ls) to 180 days, many
observed that it may difficult to achieve. This would be particularly true in hearings for
larger applications with significant landowner implications to be adjudicated by the EUB.
The EUB in its letter dated January 13, 2006 to the DOE specifically stated that many
permitting and licensing applications were already being processed in far less than the
180-day time frame. The letter also referred to Bulletin 2005-31 which contains a number
ECL 13196-01
32
of measures to streamline application reviews while maintaining a fair and equitable
process for all participants.
With respect to GTA applications, the EUB and other stakeholders commented that,
while principles of certainty and expediency are admirable, such applications are large,
complex and have significantly material consequences for many market participants, not
just the applicants. The EUB also indicated that arbitrarily forcing hard target completion
dates might cause the EUB to run the risk that it will have to reject deficient application
at the beginning of the process, thus increasing overall application turnaround time. The
EUB further noted that it was in the process if developing minimum filing requirements
to ensure stakeholders were aware of criteria from the beginning, so that applications
could be processed more expeditiously.
The DOE is encouraged that the EUB is working with stakeholders to expedite its
application, hearing and adjudication processes. The DOE notes that the ability of the
EUB to get its work done on a timely basis is a direct function of the quality of the
submitted applications. This particularly is true of GTA applications. The DOE concurs
with the observations of the EUB and others that market participants must continue to
make efforts to file reasonably complete applications with the EUB, so as not to shift the
onus for completion to the EUB and interveners. The DOE encourages the EUB to
continue to consult with utilities and other stakeholders to develop minimum filing
requirements and guidelines for all applications of any size and complexity.
The DOE also is encouraged that the EUB has launched initiatives to appropriately define
and narrow the scope of the application matters before it. We recognize the challenges of
doing so in a manner that does not compromise the public interest. Within that context,
the DOE fully supports the creation of processes and rules that appropriately bound areas
of discussion and define areas of input required by the EUB.
Finally, the DOE recognizes that the challenge of processing applications on a timely,
effective and equitable manner requires the EUB to be adequately resourced to meet their
objectives.
DOE Position
The DOE continues to hold the view that the EUB, particularly given its reform
initiatives, should be able to complete any applications for permits and licensing on a
timely basis and would suggest that decisions rendered within a 180 day timeline could
be considered timely. The DOE will recommend an amendment to the Transmission
Regulation to require the EUB to provide a written explanation in the event that this
timeline is not achievable as well as estimate a revised date for when they expect to
render the decision.
With respect to GTAs and other hearings the DOE will encourage the EUB and
stakeholders to continue to develop appropriate filing requirements and guidelines, to
ECL 13196-01
33
expedite GTA rate review and approval processes, develop appropriate mechanisms to
focus hearings and examine other appropriate ways to streamline regulatory service
delivery in the electricity sector. The EUB should also develop reports to track their
success. In this regard, the EUB, in consultation with stakeholders, will develop
preliminary processing timelines for GTAs and other relevant applications and report
to the minister on this initiative by March 31, 2007.
Finally, with respect to large transmission projects, the DOE is of the view that there
may be significant savings in cost and time if the EUB could hear applications and
make determinations concurrently on both the need for and cost and prudence of
major facility components that have a long lead time to manufacture and contract on
site. The DOE encourages the EUB to work with stakeholders and the ISO to
determine the merits of making such determinations concurrently, rather than in the
current fashion where the prudence review phase must await the final determination of
the need for the facilities.
ECL 13196-01
34
4.4
Balancing Pool
4.4.1
Basic Role Description
The Balancing Pool was established in 1999 to help manage the certain assets, revenues
and expenses arising from the transition to competition in Alberta's electric industry.
The Balancing Pool has two primary roles:
1. to manage the financial accounts arising from the transition to a competitive
generation market on behalf of electricity consumers, and
2. to meet any obligations and responsibilities associated with both sold and unsold
Power Purchase Arrangements (PPAs).
4.4.2
Role in Electricity Market
In the Roles and Mandates Paper, the DOE confirmed its support for the efforts taken by
the Balancing Pool to move the PPA capacity in to the hands of private investors.
The DOE went on to state that it encouraged the Balancing Pool to take a broad view of
its role and impact on the electricity market and consider the implications of its actions
and decisions on long term investor confidence in the Alberta electricity market.
The DOE indicated that it would draft an amendment to the Balancing Pool Regulation to
require the Balancing Pool to consider the broader market impact of its Genesee sale
process and results. Such factors for consideration would include investor confidence,
market certainty, liquidity and price signal fidelity in Alberta’s electric industry.
A number of stakeholders have responded that the DOE was correct to have a closer look
at the market impact of the sale of the Genesee PPA capacity, but that the thrust of the
regulation as outlined in the Roles and Mandates Paper placed the onus on the Balancing
Pool to analyze and make determinations about factors that were within the mandate of
other agencies.
DOE Position
The DOE shares the view expressed by many stakeholders that market factors such as
the state of market liquidity, concentration and price signal fidelity are properly within
the mandate of the MSA. It follows that the DOE will recommend a regulation
amendment that requires the Balancing Pool to consult with the MSA on such matters
and others under the purview of the MSA in accordance with its EUA authority. The
MSA determinations then must be included in the sale conditions made known to the
ECL 13196-01
35
public and taken in to account in the consideration of the eligibility and evaluation of
bids for Genesee.
It will be clear in the sale process that a successful bidder may have to have in place a
conduct compliance plan, as referred to in Section 4.2.3 above.
With respect to the Genesee sale, the DOE also is of the view that the ISO should be
consulted by the Balancing Pool to ensure that the assets up for sale will be sold in a
manner that is consistent with ISO operational and market rules, and that this also
should be made clear in the sale process and terms.
The DOE therefore will make a recommendation to amend the Balancing Pool
Regulation and the MSA Regulation to reflect these views.
4.5
Utilities Consumer Advocate
4.5.1
Basic Role Description
The UCA represents residential, farm and small business consumers in resolving
concerns related to the restructured electricity and natural gas markets.
The Advocate's office mediates concerns related to a wide variety of utility issues and
provides representation on behalf of consumers in policy discussions and new
government initiatives. The UCA relies on feedback received through its Advisory
Council to provide consumer input on issues related to natural gas and electricity.
4.5.2
UCA Role in Market Discussions
The DOE fully recognizes the independence of the UCA to act on behalf of the smaller
electricity consumers in the province. At the same time, there is a need to ensure that the
government, at all levels, is working to ensure there is a proper understanding of the
issues facing each of the agencies and the stakeholders they represent.
The DOE will make a concerted effort to work with the UCA to ensure that it is well
informed of potential policy initiatives and in a good position to represent the views of
small consumers.
The DOE will also continue to work with the UCA to address the information
requirements of small consumers.
ECL 13196-01
36
PART 5:
PROCESS GOING FORWARD
The DOE recognizes that the necessary refinements of the roles and mandates as set out
in this paper amount to a significant number of changes, and appreciates the efforts of
stakeholders to help shape the appropriate outcomes.
The DOE now will proceed to draft the referred to regulatory proposals. The DOE is very
mindful of providing these draft regulations to stakeholders as soon as possible. As with
all DOE draft regulations, we encourage stakeholders to provide comments to further
refine and articulate these changes and assure that they are implemented in an orderly
manner.
ECL 13196-01
37