Trading, Compliance and Outage Allegations
In November and December 2010, and February 2011 the Market Surveillance Administrator (“MSA”) alleged that, TransAlta Corporation, TransAlta Energy Marketing Corp. and TransAlta Generation Partnership (collectively “TransAlta”) intentionally took certain coal-fired generating units, subject to Power Purchase Arrangements (“PPAs”), offline for repairs during periods of high demand, when TransAlta was able to delay those repairs to a period of lower demand, to drive up electricity prices to benefit TransAlta’s portfolio (the “Outage Allegations”).
The MSA also alleged that TransAlta, Mr. Nathan Kaiser (“Kaiser”), an asset optimizer employed by TransAlta to manage its asset positions in Alberta, and Mr. Scott Connelly (“Connelly”) a trader employed by TransAlta to transact in the forward financial energy market, improperly used non-public information regarding the capability of certain TransAlta generating units to produce electricity in 2011 to trade in Alberta’s electricity market (the “Trading Allegations”).
As part of its allegations, the MSA submitted that TransAlta did not have effective internal compliance policies and practices in place that prevented anti-competitive conduct from occurring regarding the use of non-public outage information, the result of which was a breach of TransAlta’s obligations set out in section 6 of the Electric Utilities Act (“EUA”) to conduct itself in a manner that supports the fair, efficient and openly competitive operation of the market (the “Compliance Allegations”).
TransAlta denied the Outage Allegations, submitting that timing forced outages at coal plants subject to PPAs to benefit its portfolio was consistent with the governing law and direction it received from the MSA. TransAlta also denied the Compliance Allegations, submitting that it had a robust compliance program for its traders.
TransAlta, Kaiser, and Connelly also denied the Trading Allegations, submitting that they did not have, nor used, non-public outage information. In the case of Kaiser and Connelly, both also submitted that they were not “market participants” as defined in the EUA, but rather acting on behalf of TransAlta. Kaiser and Connelly also disputed the procedural fairness of the MSA’s investigation of them.
Background Chronology
In February of 2010, the MSA notified market participants that it would host a roundtable discussion and consultation on market participant offer behaviour enforcement guidelines (“OBEG”). In May and June of 2010, TransAlta developed the Alberta Portfolio Bidding Business Case – Executive Summary (“Portfolio Bidding Strategy”), and moved its asset optimizers (including Kaiser) to the trading floor. The Portfolio Bidding Strategy identified two key strategies for capturing higher revenues: economic withholding, and discretionary outages. Subsequently, the Portfolio Bidding Strategy received executive approval on November 18, 2010.
TransAlta timed discretionary outages as follows:
(a) November 19, 2010 at Sundance 5;
(b) November 23, 2010 at Sundance 2,
(c) December 13-16, 2010 at Sundance 2, Keephills 1 and Sundance 6; and
(d) February 16, 2011 at Keephills 2,
(collectively, the “Outage Events”).
The MSA released a draft OBEG document on November 26, 2010, seeking input regarding discretionary outages at units subject to PPAs. A final version of the OBEG was released on January 14, 2011, stating that additional considerations may apply to certain fact patterns if a unit is subject to a PPA, and that the MSA offered no guidance on outage timing at PPA units at that time.
On February 26, 2011, the MSA received a complaint regarding the conduct of TransAlta as a PPA owner pertaining to the timing of outages at coal-fired generating units. On March 8, 2011, the MSA issued a Notice of Investigation to TransAlta relating to the timing of outages and instructed TransAlta to retain all relevant records related to the matters being investigated.
As a result of its investigation, the MSA filed an application with the AUC on March 21, 2014 alleging that, in relation to the Outage Events, TransAlta contravened sections 2(h) and 2(j) of the Fair, Efficient and Open Competition Regulation (the “FEOC Reg”) and section 6 of the EUA.
Sections 2(h) and 2(j) of the FEOC Reg state that conduct by a market participant that manipulates prices away from a competitive outcome or otherwise restricts or prevents competition or a competitive response does not support the fair, efficient and openly competitive operation of the market. The MSA also alleged that the conduct of TransAlta, Kaiser and Connelly with respect to trading activities around the Outage Events contravened section 4 of the FEOC Reg and section 6 of the EUA.
Consideration of Evidence
The AUC determined that the standard and burden of proof in this proceeding would be on a balance of probabilities. The AUC also determined that the MSA would have the burden of demonstrating the occurrence of the alleged contraventions.
However, the AUC noted that where the defence of due diligence was applied, the respondents TransAlta, Kaiser and Connelly would bear the onus of proving that they took all reasonable care on a balance of probabilities.
With respect to circumstantial evidence, the AUC ruled that it was capable of drawing inferences from circumstantial evidence relied upon by the MSA, but noted the limitations requiring that any such evidence be clear, convincing and cogent.
On matters of expert evidence, the AUC noted that expert evidence would be admissible if it was relevant, necessary to assist the trier of fact, not excluded by any rule, and if the expert had the necessary qualifications.
TransAlta submitted that the expert testimony of Dr. Matt Ayres (“Ayres”) should be given little to no weight due to a lack of impartiality. Ayres authored an expert report for the MSA on price impacts associated with the Outage Events. TransAlta submitted that Ayres was the lead investigator for the MSA, played a leading role for the MSA during consultations on the OBEG matters, and drafted the MSA’s notices, therefore impugning his independence and impartiality.
TransAlta made similar submissions with respect to the expert evidence of Dr. Jeffrey Church (“Church”). Church authored a report for the MSA that addressed competition matters including market power. TransAlta submitted that Church’s evidence lacked independence on the basis that Church had an economic relationship with the complainant that launched the initial investigation, and that Church’s responses were evasive in testimony and were reflective of a conflict of interest. TransAlta also questioned Church’s independence based on his prior working relationship with one of the MSA’s investigators who was a former graduate student under Church and had co-authored a paper together. TransAlta also submitted that the expert report of Church should be given little to no weight.
The MSA argued that admissibility of expert evidence was not an issue, as no party objected to the qualification of the witnesses during the pre-qualification process set out by the AUC. The MSA stated that Ayres was independent of any market participant and served the MSA’s legislated mandate in good faith. The MSA submitted that, as an expert body, it should not be prevented from utilizing its own expertise in performing its statutory mandate. The MSA also submitted that Church had no discussions with the MSA investigator in question and was not working for any party in the proceeding. The MSA also noted that Church’s curriculum vitae showed that he had worked for a number of market participants previously, including TransAlta.
The AUC held that it was satisfied that each of the experts in the proceeding was able to carry out his or her respective duty to provide the AUC with fair, objective and non-partisan evidence, and did so under oath or affirmation. As a result, the AUC held that all of the expert evidence filed was admissible as such.
Specifically, with respect to Church’s evidence, the AUC determined that Church’s reluctance to answer questions about his previous employment was not evasive, and that his reluctance to identify the unnamed complainant arose from a contractual and professional duty of confidentiality, and that Church went to considerable lengths to respect those obligations. The AUC also found no reason to discount the expert evidence on the basis of prior academic work with an MSA investigator, as the AUC had no evidence before it that suggested it affected the expert evidence provided.
With respect to Ayres’ evidence, the AUC found that a mere employment relationship was generally insufficient to render evidence inadmissible, but noted that the “party” and “expert” in this instance were nearly one and the same, which would normally lead to considerable concern over the evidence in question. However, the AUC found that the following factors mitigated those concerns:
(a) The nature of the expert evidence as counterfactual evidence in analyzing alternative outage timings. The AUC noted that Ayres relied on other expert reports for his inputs, and his calculations were transparent;
(b) TransAlta’s own experts had an opportunity to critique Ayres’ work, and provided commentary on what they believed were shortcomings in Ayres’ work;
(c) The AUC’s own expertise and familiarity with economic analysis and the Alberta electricity market;
(d) Ayres was experienced and knowledgeable with respect to the Alberta electricity market and was well qualified to perform his analysis; and
(e) The MSA’s duty to carry out its responsibilities in a fair and responsible manner. As chief economist at the MSA, the AUC found that Ayres appreciated this duty and performed his job obligations in good faith.
Outage Allegations
The MSA submitted that sections 2(h) and 2(j) of the FEOC Reg were strict liability offences, requiring only that the MSA prove the events occurred and harmed the market, subject to the defence of due diligence from TransAlta.
The MSA argued that the Outage Events were discretionary outages, as the boiler tube leaks and other mechanical problems noted by TransAlta were not significant, and operations could have continued in a steady state. The MSA referenced statements by TransAlta to the effect that the nature of the leaks in question did not require an immediate outage, although the unit would have to come offline in the near future.
The MSA argued that the timing of the outages was not determined by good operating practices by operation staff, but rather dictated by the marketing and trading group. The MSA testified that TransAlta had scheduled the outages at times of high demand and tight supply with the aim of driving up the pool price for the benefit of TransAlta’s Portfolio Bidding Strategy, and to the detriment of buyers under the PPAs, thereby constituting a breach of section 2 of the FEOC Reg and section 6 of the EUA.
The MSA provided expert evidence and data showing that discretionary outages were usually taken during off-peak hours by owners of the PPAs, so that the reliability to the Alberta Interconnected Electrical System (“AIES”) was not compromised, and mitigated upward pressure on pool prices. The MSA also provided evidence that boiler leaks and mechanical problems were common, and well understood by market participants such as TransAlta, and were typically scheduled over weekends or at night. The MSA therefore argued that, after reviewing the logs from TransAlta in respect of the Outage Events, the units could have been taken off during off-peak hours.
TransAlta developed its Portfolio Bidding Strategy in the fall of 2010. It identified two key strategies for capturing higher revenues: economic withholding and discretionary outages, stating that “the aim of both strategies is to move settled pool price higher by physically removing MW from the supply curve by offering them in at a higher price or by removing [them] from the system altogether.” TransAlta implemented the Portfolio Bidding Strategy on November 19, 2010.
TransAlta made two main arguments in respect of the Outage Events. First, that the buyers of the PPAs received the electricity that they were entitled to under the arrangements. Second, TransAlta had the unfettered right to time its outages pursuant to section 5.2 of the PPAs to “interrupt the provision of Generation Services from any Unit at any time to the extent necessary to safeguard life, property or the environment, or to the extent reasonably necessary to conduct preventative maintenance” to safeguard the same. TransAlta submitted that during the Outage Events, TransAlta staff noted boiler tube leaks and other mechanical problems, thereby necessitating a forced outage for safety reasons. TransAlta noted that the operations staff provided a range of timing for outages for the plants in question, after discovering the leaks, and that the asset optimizers provided recommendations for the specific start times within the range suggested by operations staff. Therefore, TransAlta argued, it had acted in accordance with its obligations under the PPAs.
The AUC determined that the PPAs are a component of a comprehensive statutory scheme enacted to ensure the fair efficient and openly competitive operation of the electricity market in Alberta, as the PPAs were incorporated by virtue of the Power Purchase Arrangement Determination Regulation.
The AUC noted that the competitive generation market was first imposed on the preceding regulatory structure through the creation of PPAs that were designed to reduce the market power of the three incumbent generators, thereby stimulating greater competition. In finding that the intent of the EUA was to establish an efficient market based on fair and open competition, the AUC determined that section 6 of the EUA established a positive duty on market participants to conduct themselves in a manner that supports the fair, efficient and openly competitive operations of the electricity market, including under PPAs.
The AUC also determined that section 2 of the FEOC Reg sets out conduct that breaches the positive obligation established by section 6 of the EUA. However, the AUC noted that the text of section 2(h) of the FEOC Reg did not contain any qualifying language, such as “unduly”, or “substantially”, and therefore the interpretation of events that restrict or prevent a competitive response need not be expressly limited to those found in section 2(h) of the FEOC Reg. The AUC also determined that the absence of qualifying language in section 2(h) of the FEOC Reg signalled an intention that it would apply to all conduct that prevents competition or a competitive response.
Based on the plain and ordinary meaning of the provisions, the AUC concluded that the conduct prohibited must be conduct undertaken with an anticompetitive purpose, demonstrated on a balance of probabilities. However, the AUC found that it did not require direct evidence of subjective intent, but that the intent could also be proven indirectly on the basis that a person intends the reasonably foreseeable consequences of its acts. The AUC did agree with TransAlta with respect to section 2(j) of the FEOC Reg, holding that the use of the word “manipulating” in the section implied that proving an anticompetitive purpose was an element of the offence.
Based on this assessment, and the lack of qualifying language, the AUC considered that the prohibited conduct in section 2 of the FEOC Reg was a “per se” offence, in that the conduct enumerated is anticompetitive in and of itself without the need to assess the economic impact of the conduct. Therefore, the MSA did not have to demonstrate that the conduct resulted in competitive harm, but rather demonstrate the movement of market prices away from a competitive market outcome.
The AUC determined that the offences were strict liability offences, meaning that there is no necessity for the prosecution to prove the mens rea (or intent, knowledge or recklessness). Strict liability offences also leave open to the accused the defence of due diligence, by proving that they took all reasonable care to either avoid the event, or that the accused reasonably believed in a mistaken set of facts. The AUC noted that if it were to require proof of wrongful intention, it could introduce significant barriers to effective regulatory oversight and prevention of conduct that does not support the fair, efficient and openly competitive operation of the electricity market. Therefore the AUC determined that the burden of proof did not require the MSA to demonstrate any element of subjective intent on behalf of TransAlta, and that the defence of due diligence was available to TransAlta.
The AUC determined that the Outage Events were discretionary in nature, finding that none of the Outage Events required an immediate outage. All of the outages were deferred beyond ten minutes, thereby meeting the MSA’s definitions of discretionary outages. The AUC also placed significant weight on the fact that the units continued to run at a steady state (and in some cases, for several days) from the detection of the problems until shut down at the times selected or requested by the asset optimizers from TransAlta’s marketing and trading departments. The Outage Events, in the AUC’s determination, were therefore primarily scheduled for the purposes of TransAlta’s Portfolio Bidding Strategy, and not to safeguard life, property or the environment.
While the AUC acknowledged TransAlta’s evidence that plant operators had the final say on outages, the AUC noted the overwhelming evidence to show that the operators deferred to the asset optimizers on questions of outage timing. Therefore, on a balance of probabilities, the AUC determined that the MSA demonstrated that TransAlta’s determination on the timing of the Outage Events was to advance its Portfolio Bidding Strategy, and not safety.
The AUC held that while the results of the two competing expert reports differed due to the assumptions used, each report clearly demonstrated an increase in average pool prices due to the specific outage timings chosen by TransAlta.
The AUC found that the reasons TransAlta engaged its Portfolio Bidding Strategy was to increase uncertainty and thereby influence forward markets, and was supported by TransAlta’s own documents. Therefore, the AUC determined that the Outage Events impacted pool prices, however, due to the limited evidence submitted on the issue, the AUC made no finding in respect of the magnitude of any such effects.
On questions of market power, the AUC held that the nature of the PPAs themselves gave rise to an imbalance of power as between the owner and buyer, as the owner has potentially valuable information about the need, nature and extent of the outage which no other market participant holds. On this basis, the AUC dismissed TransAlta’s arguments that the buyers and owner under the PPAs were not competitors.
Therefore, the AUC found that by timing outages subject to PPAs based on market conditions rather than for safeguarding life, property or the environment, TransAlta unfairly exercised its discretion under the PPAs for its own advantage, and for an anticompetitive purpose by restricting or preventing them from providing a competitive response. The AUC held that the conduct in question was contrary to the purpose, spirit and intent of the EUA and undermined the fair, efficient and openly competitive operation of the electricity market.
The AUC acknowledged that the market may be influenced by other market conditions, but held that the removal of capacity under the PPAs from market supply nonetheless had the potential to move the pool price away from its competitive level, all else being equal. The AUC further determined that only TransAlta knows whether it is going to implement its Portfolio Bidding Strategy when it trades on the forward market, whereas other parties only have a probabilistic view. Therefore the AUC reasoned that TransAlta was also capable of exploiting forward markets in an ongoing manner.
On the question of economic harm, the AUC determined that it was not required to find that the impugned conduct caused economic harm under section 2(h) of the FEOC Reg, since it was a per se offence. Nevertheless, the AUC did find that TransAlta’s conduct resulted in economic harm. Relying on its earlier determination that TransAlta could have deferred the Outage Events, the AUC found that TransAlta’s conduct was deliberate and designed to move market prices away from a competitive outcome during times of high demand and/or constrained supply.
With respect to TransAlta’s defences of due diligence, officially induced error and abuse of process, the AUC applied the principles enumerated in Bulletin 2010-17, which provides that the respondent must have put procedures in place that address reasonably foreseeable breaches of laws, regulations and rules.
The AUC held that the evidence did not support the claim that the MSA provided clear, unequivocal and binding advice condoning the Portfolio Bidding Strategy, and TransAlta should have exercised considerable care in making efforts to avoid breaching the EUA and FEOC Reg. Rather, the AUC determined that the hypothetical scenarios discussed were ambiguous. The AUC noted that TransAlta did not follow up with the MSA, nor seek to clearly confirm its interpretation on these scenarios. If TransAlta wished to solicit advice from the MSA in respect of its Portfolio Bidding Strategy, TransAlta should have done so fully and frankly, and in sufficient detail to permit the MSA to provide the appropriate advice.
For officially induced error, the AUC held that in order for TransAlta to meet its burden, it would have to prove the existence of:
(a) An error of law or mixed fact of law;
(b) TransAlta’s consideration of the legal consequences of its actions;
(c) The advice TransAlta obtained having come from an appropriate official;
(d) The advice having been reasonable, but erroneous; and
(e) TransAlta’s reliance on the evidence in committing the act.
The AUC dismissed the defences, relying on the context in which the MSA provided its advice, noting that the MSA advised TransAlta that consultation discussions were not considered binding statements of MSA policy. Therefore, the AUC considered it unreasonable for TransAlta to rely on the information provided by the MSA.
As a result of the above finding, the AUC concluded that for the Outage Events, TransAlta restricted or prevented the buyers of the PPAs from providing a competitive response contrary to section 2(h) of the FEOC Reg, and further manipulated market prices away from a competitive market outcome.
Trading Allegations
The trading allegations were focused on three emails between Kaiser, Connelly and TransAlta that the MSA alleged used non-public records to trade. The first email, dated December 3, 2010 from a TransAlta employee to Kaiser and another TransAlta employee sought analysis of outages of various durations on the Sundance 2 unit. The second email, dated January 6, 2011 from Kaiser to Connelly and others, contained extracts of a Calgary Herald article on outages at Sundance 1 and 2. The third email, dated January 6, 2011 from Kaiser to Connelly and another TransAlta employee requested the purchase of “100 MW of Feb at market to cover the January balance of month and February.”
With respect to the status of each respondent as a market participant, Kaiser and Connelly both submitted that they were not market participants as defined in the EUA on the basis that the enactments included employees as operating under a market participant, however TransAlta conceded that it was a market participant. The MSA submitted that based on the plain and ordinary wording of the EUA, Kaiser and Connelly were market participants as they exchanged, traded, purchased or sold electricity, electric energy, electricity services or ancillary services.
The AUC determined that the context of each provision provided ample interpretive assistance, and that Kaiser and Connelly were market participants, noting that the provisions were drafted in the widest terms possible due to their frequent use in the legislation, and did not typically differentiate between a business entity and its employees. Therefore, the AUC held that “market participant” in the context of section 6 of the EUA applied to individuals as “market participants”.
The MSA alleged that the first two emails were non-public outage records, and Kaiser used these records to trade, directly or indirectly on January 6 and 7, 2011. Connelly was alleged to have used the outage records to trade directly or indirectly between January 6 and 21, 2011. The MSA alleged that these acts constituted a breach of section 4(1) of the FEOC Reg, which prohibits market participants from using non-public outage records to trade, subject to exemptions from the Alberta Electric System Operator (“AESO”).
The MSA submitted that TransAlta had recently become aware of corrosion fatigue problems at Sundance 1 and 2, and sought to plan for several outage scenarios of between 55 and 343 days in length to make repairs. In the course of providing the outage scenario information, Kaiser advised that he would be prevented from taking any action on his remaining 2011 trading positions, but sought clarification from other TransAlta employees. Kaiser was later advised by management that the records were not non-public outage records, and was eligible to continue trading. TransAlta later decided to take down Sundance 1-4 due to boiler leakage issues in December 2010, and trading for all personnel was suspended on December 17, 2010, and reinstated on December 29, 2010 after the information was provided to the PPA buyer and the AESO that Sundance units would be offline until mid-February 2011.
Kaiser sought additional confirmation from TransAlta management that he could instruct trades after December 29, 2010 and received confirmation that he did not have any non-public information.
TransAlta declared a force majeure on the Sundance units for boiler tube repairs, with an estimated in-service date of February 15, 2011. Kaiser later emailed an extract of a Calgary Herald article to the traders on January 6, 2011 highlighting that “TransAlta has no clear picture of when the units will be back in service […] A decade ago TransAlta’s now-retired Wabamum 4 unit was shut down for nine months due to similar issues with corrosion.”
Kaiser emailed Connelly later that day at 10:49 a.m. seeking to buy 100MW of February capacity at market to cover the balance of the month in January and February due to the risk of outages at Sundance being extended.
Records showed that Connelly purchased a total of 155 MW of February flat contract on January 6, 2011: 50 MW prior to receiving any of the above emails; 100 MW after receiving the Calgary Herald article, and 5 MW after receiving both emails.
The AUC interpreted section 4 of the FEOC Reg as having three main objectives:
(a) Establishing a prohibition on trading non-public outage information;
(b) Establishing an obligation for market participants to file outage records with the AESO; and
(c) A process for the AESO to make outage records public, or to grant exemptions on the prohibition on trading.
Therefore, if a record is not public and not exempt, it cannot be used to trade. The AUC, based on the plain and ordinary meaning, found that “outage record” referred to any information that relates to the ability of a generating unit to produce electric energy, including whether or not it can produce energy at a particular time. However, the AUC noted a materiality threshold for such records.
The AUC determined based on the factual background, that Kaiser had knowledge that the problems with boiler corrosion on the Sundance units could last between six and twelve months, and could therefore reasonably be expected to have a material impact on market prices, given the magnitude of capacity that could be removed from the Alberta electricity market. Therefore, the AUC concluded that Kaiser had possession of an outage record, but the MSA failed to prove that the second email in question was a non-public outage record.
The AUC found that Kaiser’s trade instruction noting “there is some risk to the outages at Sun 1/2 being extended” was non-public information, given Kaiser’s knowledge of the extended outage scenarios lasting up to 343 days which was never shared with the public. The AUC further determined that Kaiser used the information he had with respect to the capability of the Sundance units to produce electricity to trade when he instructed the purchase of 100 MW at market price on January 6, 2011 and 50 MW on January 7, 2011. The AUC however found that Kaiser had met the defence of due diligence by expressing his immediate concern in respect of the non-public outage information, and by removing himself from trade positions, thereafter seeking advice from TransAlta management on whether the document was an outage record on two separate occasions. Therefore, Kaiser had not breached section 6 of the EUA.
The AUC found, that the MSA failed to meet its evidentiary burden against Connelly, as the information in the two emails from Kaiser to Connelly did not contain non-public information about the capability of generating units to produce electricity, and none of the emails from Kaiser to Connelly relayed the non-public outage information possessed by Kaiser. The AUC further found that Connelly’s trading activity was consistent with historical trading patterns and the price forecast Connelly had been provided with at the time.
With respect to the allegations against TransAlta, the AUC held that management knew or reasonably should have known that Kaiser had non-public information regarding the Sundance units, which could reasonably be expected to have a material impact on market prices, as Kaiser sought guidance on his trading restrictions. The AUC found that TransAlta should have maintained its trading blackout of Kaiser on the basis of his information. Therefore, by allowing Kaiser to trade while in possession of non-public outage information, TransAlta also breached section 4(1) of the FEOC Reg by providing or allowing status information in respect of the Sundance generating units to be provided to a trader outside of a non-trading period, in violation of TransAlta policies. The AUC also noted that TransAlta did not seek advice from its regulatory group or legal counsel with respect to Kaiser’s trading activities, which the AUC found was evidence that TransAlta did not take all reasonable steps available to it.
Compliance Allegations
The MSA submitted that TransAlta did not have effective internal compliance policies and practices to prevent anticompetitive conduct from occurring, especially in respect of non-public outage information. The MSA reasoned that this substandard practice was a breach of the positive obligation in section 6 of the EUA to support a fair, efficient and openly competitive operation of the market. Specifically, the MSA argued that the following were evidence of compliance policies which did not effectively prevent trading contraventions:
(a) The co-location of asset optimizers with traders;
(b) Allowing the self-regulation of asset optimizers for non-public information;
(c) Allowing asset optimizers to notify traders of non-public outage information about to go public in anticipation of trading on the information;
(d) Taking no action with respect to reported non-compliances from asset optimizers;
(e) Failing to apply oversight practices with respect to the Portfolio Bidding Strategy with respect to information sharing; and
(f) Failing to retain relevant documents and records and failure to prevent their loss or deletion.
The AUC dismissed the Compliance Allegations, noting that the MSA did not give any detailed evidence about compliance plans and conduct in the industry, nor how TransAlta’s practices measured up to any such industry standard. The AUC also placed significant weight on the MSA not calling any expert evidence in respect of benchmarks for compliance plans. Accordingly, the AUC found that it could not conclude that TransAlta’s compliance plans were inadequate on the evidence before it.
Decision
In the result, the AUC determined the following with respect to the Outage Allegations:
(a) TransAlta timed outages at its coal-fired generating units subject to PPAs on the basis of market conditions rather than by the need to safeguard life, property or the environment as described in Article 5.2 of the PPAs on four occasions:
(i) November 19, 2010 at Sundance 5;
(ii) November 23, 2010 at Sundance 2;
(iii) December 13-16, 2010 at Sundance 2, Keephills 1 and Sundance 6; and
(iv) February 16, 2011 at Keephills 2;
(b) TransAlta was capable of deferring the events above to off-peak hours, but elected to take them during peak or super-peak hours for the benefit of its own portfolio;
(c) TransAlta’s timing of outages increased pool prices above what they otherwise would have been had the outages been scheduled for off-peak hours;
(d) The implementation of the Portfolio Bidding Strategy affected forward markets, however the AUC made no finding on the magnitude of the effects associated with the outages;
(e) Each of the four outage events prevented a competitive response from the respective buyers under the PPAs, contrary to section 2(h) of the FEOC Reg and section 6 of the EUA;
(f) TransAlta failed to establish the defence of due diligence or officially induced error for any of the four outage events; and
(g) TransAlta failed to demonstrate that the MSA’s investigation into the outage events was an abuse of process.
In the result, the AUC determined the following with respect to the Trading Allegations:
(a) TransAlta, Kaiser and Connelly were “market participants”;
(b) On January 6 and 7, 2011, Kaiser used non-public outage records to trade contrary to section 4(1) of the FEOC Reg;
(c) Kaiser took all reasonable steps to avoid a breach by seeking and getting direction from senior management at TransAlta on his continued eligibility to trade on two separate occasions after receiving non-public outage records. Kaiser therefore established the defence of due diligence and therefore the AUC could not conclude that Kaiser breached section 6 of the EUA;
(d) The MSA failed to demonstrate that Connelly had or used non-public outage records to trade during the period between January 6 and 21, 2011 or that Connelly otherwise breached Section 6 of the EUA;
(e) TransAlta breached section 4(1) of the FEOC Reg and section 6 of the EUA by allowing Kaiser to trade while in possession of a non-public outage record;
(f) TransAlta has not established the defence of due diligence with respect to the trading allegations; and
(g) The MSA carried out its mandate in a fair and reasonable manner throughout its investigation and during the hearing.
With respect to the Compliance Allegations, the AUC determined that the MSA failed to demonstrate on a balance of probabilities that TransAlta breached section 6 of the EUA on the basis that its compliance policies, practices and oversight thereof, were inadequate and deficient.
