Line Loss Factor Methodology – ISO Rules – AESO Complaints
On August 17, 2005, Milner Power Inc. (“Milner”) first brought a complaint against the AESO under the Electric Utilities Act (“EUA”) section 25(6) (the “Complaint”) about ISO Rule 9.2: Transmission Loss Factors and Appendix 7: Transmission Loss Factor Methodology and Assumptions (collectively, the “Line Loss Rule”).
On April 16, 2014, the AUC issued Decision 2014-110, in which the AUC review panel upheld the findings in AUC Decision 2012-104. Specifically, the AUC held that the Line Loss Rules was unjust, unreasonable, unduly preferential, arbitrarily and unjustly discriminatory and inconsistent with and in contravention of the EUA and portions of the Transmission Regulation dealing with line losses.
On August 8, 2014, the AUC released a list of issues and proceeding schedules directing that Phase 2 of the proceeding be divided into three modules: A, B and C.
Module A would consider several issues of fact, law and jurisdiction; Module B would consider the development of a new line loss factor calculation methodology and line loss rule; and Module C would address the determination of financial compensation that parties were entitled to receive or had to pay, as the case may be.
On April 21, 2016, the AUC issued a ruling regarding the process for determining Module C issues, in which it determined that:
1. It would be premature to determine the proper amount of compensation before the development of a compliant methodology and Line Loss Rule;
2. There are several issues, relevant to Module C, which can be determined in the absence of a new rule (the Phase 2 Module C Preliminary Issues).
On September 18, 2016, the AUC issued Decision 790- D04-2016, which addressed the Phase 2 Module C Preliminary Issues. The AUC’s findings with respect to each of those issues are summarized below.
Issue A: Parties Eligible for Compensation
Most parties submitted that all generating units subject to the 2005 Line Loss Rule should be eligible for compensation. ENMAX submitted that only generators that complained about the rule should be eligible, and only eligible from the date they made a complaint.
The AUC held that all ratepayers affected by the unlawful line loss charges should be eligible for compensation. The AUC concluded that the portion of the (unlawful) ISO Tariff based on loss factors was part of a negative disallowance scheme and therefore interim in nature. Any adjustments to bring those rules into compliance will ensure that the final rates are just and reasonable and therefore lawful. The fact that some generators will be worse off under the lawful final rates is not the same thing as punishing those generators, as submitted by ENMAX.
Issue B: Identify and Notify Affected Market Participants
The AUC held that the AESO is in the best position to identify parties affected by the unlawful Line Loss Rule.
With respect to notice, the AUC held that although there had been ample notices issued throughout the history of the Complaint and related proceedings, out of an abundance of caution, it would issue a further notice to past and current market participants. This notice will alert participants of the upcoming adjustments to interim tariff charges since January 1, 2006.
Issue C: Large Charges May Affect Viability
Some parties argued that potentially large charges that could affect the viability of a generator would not be in the public interest and therefore should not be allowed.
The AUC rejected that view, noting that it would not be just and reasonable to allow parties to permanently benefit from unreasonable rates at the expense of injured parties.
The AUC noted that only after charges and credits have been recalculated and incorporated in to the ISO tariff (Module B), will it become apparent if there are any large charges that may compromise the ongoing viability of an existing generator. The AUC also noted that the AESO has considerable leeway to arrange deferred payments in cases where a generator’s viability would be affected.
The AUC held that its ultimate determination of Module C has the potential to produce a material adverse effect on some market participants. The AUC stated that if such an impact would compromise the ongoing viability of an existing generator, the AUC could take that into consideration in determining the manner in which line losses costs would be collected.
Issue D: Cost Recovery
The AUC noted that it had previously issued a 2008 bulletin and subsequent 2010 correspondence in which the AUC stated that it would not establish a cost regime in connection with markets proceedings.
The AUC held that such notice was sufficient for parties to be aware, or should reasonably have been aware, that they would not be eligible to recover costs. Generators’ decisions to participate or not were therefore made with the knowledge that they would not be able to recover the associated costs. The AUC rejected arguments from some parties that successful parties should receive costs.
Issue E: Interest Costs
The AUC held that the reallocation of the costs of losses only addresses part of the injustice that occurred whereby some parties unjustly paid too much and other parties unjustly paid to little.
The AUC concluded that it is just and reasonable to also consider the time value of money dating back to January 1, 2006, and that awarding (or charging) interest is a reasonable method to do so.
The AUC found that setting the relevant interest rates to the Bank of Canada’s Bank Rate plus 1.5% is consistent with the guidance set out in AUC Rule 023 regarding interest.
Issues F & G: Aggregation in Prior Periods & Re-doing Merit Orders
The AUC noted that a compliant line loss rule for the period from January 1, 2006 to the effective date of the new line loss rule did not need to be the same as the new line loss rule going forward.
The AUC noted that any attempt to re-construct past market conditions would be very difficult and time consuming, involve considerable speculation, and be inherently affected by hindsight bias.
The AUC held that it is neither feasible nor reasonable to attempt to look back and accurately model what parties would have done in terms of aggregation of offer blocks since January 1, 2006.
The AUC held that apportionment of loss volumes and costs should instead be based on the actions that caused past volumes and costs. In other words, information about the actual operation of generating facilities should be used as inputs to make such determination.
Issue H: Forecast or Actual Data
Most parties argued that using actual data is preferable to using forecast data. Those parties noted that actual data is less susceptible to speculation and judgement, forecast data is only used as a temporary measure until actual data is available. Actual data will be more accurate and reduce the need for Rider E adjustments. It is not practical to create forecasts for 8,760 merit orders in each year from January 1, 2006.
Milner and ATCO Power argued for the use of forecast data because such data is readily available and that such data is also compatible with the version of the AESO’s methodology proposed at the outset of Module B.
The AUC noted the importance of ensuring that initial annual loss factors for each generator, prior to applying any calibration factor, should reflect cost causation as much as possible. The AUC held that using actual data would most closely reflect the actual cost causation.
Issues J & K: The Method for and Timing of Collection/Reimbursement
Without making a final determination on these issues, the AUC noted that there might be merit in limiting the amount reimbursed for a calendar year to the amount collected from generators that underpaid. This would involve a two step process whereby the AESO first collects for a calendar year, and after waiting a reasonable period of time to receive payments, issues reimbursements based on each participant’s share of the total credits for that year (i.e. pro-rata allocation).
AUC Direction to the AESO
The AUC directed that the AESO file with the AUC a list that includes the contact information for all parties that received an ISO tariff invoice with a loss factor component since January 1, 2006. The AUC directed the AESO to file that information within one month of the decision. The AESO had to file that list by October 28, 2016.
