Section 26 of the Electric Utilities Act – Complaint Application Regarding AESO Conduct – Application Dismissed
On January 25, 2017, Enel Alberta Wind Inc. (“Enel”), the owner of the Castle Rock Ridge (“CRR”) Wind Farm (the “CRR Wind Farm”), filed a complaint with the AUC regarding the conduct of the Alberta Electric System Operator (“AESO”) (the “Complaint Application”), pursuant to Section 26 of the Electric Utilities Act (“EUA”).
For the reasons summarized below, the AUC dismissed the Complaint Application.
Complaint Application
In the Complaint Application, Enel asserted that:
(a) to satisfy the requirements of the South Alberta Transmission Reinforcement plan (“SATR”), the AESO made a number of major changes to the requirements for the interconnection of the CRR Wind Farm to the Alberta Interconnected Electric System (“AIES”);
(b) as a result of the changes made by the AESO, Enel was required to pay for facilities that were in excess of what was reasonably required to provide system access to the CRR Wind Farm, in excess of the minimum requirements to serve the CRR Wind Farm’s need, and in excess of what was required by good electric industry practice;
(c) Enel was charged for radial transmission facilities that, within five years of commercial operation, were planned to become looped as part of the SATR regional transmission system project;
(d) the AESO’s conduct in making these changes contravened section 47 of the Transmission Regulation, Section 8 of the 2011 Independent System Operator (“ISO”) Tariff (the “ISO Tariff”): Construction Contribution for Connection Projects, and Section 9.3(c)(iii) of the 2006 ISO Tariff; and
(e) the AESO’s conduct in interpreting and applying the ISO Tariff in determining the customer contribution to be paid by Enel for the CRR interconnection, amounted to unfair, arbitrary or discriminatory treatment of Enel.
Background
In September 2009, the AUC issued Decision 2009-126 approving the AESO’s SATR Needs Identification Document (“NID”) (the “SATR NID”). The SATR NID did not include the facilities specifically required to connect individual wind farms (including the CRR Wind Farm) in the Pincher Creek area.
In January 2009 the AUC approved the transfer of the CRR power plant approval from the previous developer (Wind Power Inc.) to Enel (the “Power Plant Approval”).
In June 2010, the AESO filed the Fidler NID application (Proceeding 690) (the “Fidler NID”), which proposed the Fidler transmission development to facilitate the orderly connection of future wind farms in the Pincher Creek area. In this transmission development proposal, a 240 kV double-circuit transmission line was proposed from the Goose Lake 103S Substation to connect the CRR Wind Farm. The 240 kV transmission line was not proposed to go further west from the CRR Wind Farm to Crowsnest or Chapel Rock.
In August 2010, the AESO filed a NID application for the CRR Wind Farm interconnection to the AIES. This connection plan was predicated on the approval of the Fidler substation application, which was considered in Proceeding 690 at that time. AltaLink filed the corresponding facility applications with the AUC on October 15, 2010, seeking approval to construct and operate Castle Rock Ridge 205S Switching Station and associated 240 kV double-circuit transmission line 1071L/1072L from the 205S to Point A.
Enel completed construction of the CRR Wind Farm in March 2011. However, Proceeding 690 had not concluded and, as a result, the necessary transmission facilities were not ready to connect the CRR Wind Farm by its target in-service date of September 2011.
Amended CRR Wind Farm NID and Facility Applications
In response to the delay associated with approval of the Fidler NID and Enel’s request that the AESO find a solution to connect the CRR Wind Farm as close as possible to its targeted in-service date, the AESO identified two options for Enel’s consideration:
(a) Option 1A proposed to connect the 205S Switching Station to Goose Lake 103S Substation by means of a new nine-kilometer segment of 240 kV double-circuit transmission line (1071L/1072) from the proposed Castle Rock Ridge 205S Switching Station to the existing Goose Lake 103S Substation; and
(b) Option 2A, the less expensive option, for the construction of a system switching station at Point A and a single circuit 240 kV transmission line from the switching station at Point A to the CRR Wind Farm. A disadvantage identified with option 2A was that costs already incurred on the project, such as consultation, initial engineering and design and material procurement would be included in the single circuit option costs. Further, AltaLink advised that the related re-work in respect of the single circuit option, would further delay the already delayed in-service date.
Reserving its rights to challenge the cost estimates and classification with the AESO, Enel identified option 1A as its preferred option. During preparation of the amendment application, the AESO advised Enel that the $25.2 million cost of the proposed development identified in the CRR Wind Farm NID would be participant-related.
In Decision 2011-439, the AUC approved the combined CRR Wind Farm NID and facility applications as amended and issued the necessary permits and licences.
AESO Dispute Resolution Process
In June 2016, Enel submitted a written dispute to the AESO in accordance with the ISO Rules. The AESO issued its decision on dispute resolution in August 2016 (the “AESO Dispute Resolution Decision”).
Legislative Scheme
The AUC explained that its role vis-à-vis the AESO includes ruling on matters brought before it by the AESO and also ruling on complaints brought by others relating to the conduct of the AESO. The AUC noted that the AESO’s exercise of its authority is not unlimited and is subject to a number of checks, including the following:
(a) First, the AESO has a statutory duty to act fairly and responsibly;
(b) Second, the ISO Tariff must be approved by the AUC;
(c) Third, the AUC must approve needs identification documents prepared by the AESO and adjudicate if the need for new transmission infrastructure is contested by an interested party; and
(d) Fourth, a person who has a concern about the conduct of the AESO may make a complaint about that conduct to the Commission, pursuant to Section 26 of the EUA.
EUA Section 26 – Complaints about the ISO
Section 26 of the EUA authorizes the AUC to rule on complaints by any person about the conduct of the AESO:
Complaints about ISO
26(1) Any person may make a written complaint to the Commission about the conduct of the Independent System Operator.
Subsection 26(2) prescribes circumstances in which a complaint must be dismissed:
(2) The Commission must dismiss the complaint, giving reasons for the dismissal, if the Commission is satisfied that
(a) the substance of the complaint has been or should be referred to the Market Surveillance Administrator for investigation,
(b) the complaint relates to a matter the substance of which is before or has been dealt with by the Commission or any other body, or
(c) the complaint is frivolous, vexatious or trivial or otherwise does not warrant an investigation or a hearing.
Subsection 26(3) provides the AUC discretion and remedial powers when considering a complaint:
(3) The Commission may, in considering a complaint, do one or more of the following:
(a) dismiss all or part of the complaint;
(b) direct the Independent System Operator to change its conduct in relation to a matter that is the subject of the complaint;
(c) direct the Independent System Operator to refrain from the conduct that is the subject of the complaint.
in Decision 2010-104, the AUC previously set out examples of the types of complaints EUA section 26 was intended to address, including but not limited to, the following:
-
complaints about the AESO’s compliance with Commission rules;
-
complaints about the AESO’s consultation with interested parties; and
-
complaints about the AESO relating to procedural rights in the AESO processes that do not relate to the making of rules or setting of fees.
The AUC explained that the nature of prior complaints had generally been concerned with AESO conduct that had an alleged adverse effect on a person’s position. The AUC found that the policy reason behind EUA section 26 were to provide market participants with an opportunity for redress in circumstances where the AESO’s decisions had a negative effect, where the AESO’s conduct was at issue and where there was no clear alternative mechanism available to address the subject matter of the complaint.
AESO’s Duties
To provide further context for its determination of the issues raised in the Complaint Application, the AUC provided an overview of the relevant statutory framework:
-
Section 17 of the EUA provides that the AESO’s duties include, amongst other things:
(i) to provide system access service on the transmission system and to prepare an ISO tariff [EUA s 17(g)];
(ii) to direct the safe, reliable and economic operation of the interconnected electric system [EUA s 17(h)];
(iii) to assess the current and future needs of market participants and plan the capability of the transmission system to meet those needs [EUA s 17(i)]; and
(iv) to make arrangements for the expansion of and enhancement to the transmission system [EUA s 17(j)].
-
Section 20(1) of the EUA provides that the AESO may make rules respecting, inter alia, the AESO’s practice and procedures, the exchange of electric energy through the power pool, the operation of the AIES, and planning the transmission system, including criteria and standards for the reliability and adequacy of the transmission system.
-
Section 33 of the EUA states that the AESO “must forecast the needs of Alberta and develop plans for the transmission system to provide efficient, reliable and non-discriminatory system access service and the timely implementation of required transmission system expansions and enhancements.”
-
Sections 8 and 10 of the Transmission Regulation require that the AESO forecast the needs of Alberta and plan the transmission system to meet those needs.
-
Section 15 of the Transmission Regulation outlines the matters the AESO must take into account when making rules and exercising its duties.
-
Section 90 of the EUA provides immunity for the AESO from liability for “acts” that include acts and omissions carried out in the exercise of its mandate, unless the acts constitute wilful misconduct, negligence or breach of contract or the acts were not carried out in good faith.
The AUC found that, when read as a whole, the statutory scheme makes clear the fundamental importance of planning the transmission system so that the structure of the Alberta Electric industry is not distorted by unfair advantages given to any participant.
Jurisdiction to Consider Complaint
The AUC found that it had jurisdiction under EUA Section 26 to consider the Complaint. Specifically, the AUC found that its jurisdiction under EUA section 26 allowed for consideration of the AESO’s conduct leading up to the AESO Dispute Resolution Decision and the AESO’s findings in that decision.
Having found that it had jurisdiction to consider the complaint, the AUC concluded that it therefore had the jurisdiction under sections 26(3)(b) and (c) of the EUA to direct the AESO to change its conduct or to refrain from the conduct that was the subject of the complaint.
Preliminary Issue under Section 26(2) of the EUA
Must the AUC Dismiss the Complaint Application under EUA Section 26(2)(b)?
Section 26(2) of the EUA directs the AUC to address, as a preliminary issue, whether any of the criteria established by that subsection are satisfied such that the complaint must be dismissed.
The AUC found that only EUA subsection 26(2)(b) had possible application to the Complaint Application, that is, whether the complaint related to a matter the substance of which was before or had been dealt with by the AUC or any other body.
The AUC explained that it conducts a two-step analysis when considering EUA section 26(2)(b):
(a) at the first step, the AUC considers what the issue is, and
(b) at the second step, the AUC considers whether the issue had previously been determined or if the issue was being dealt with in another proceeding.
In this case, the AUC found that:
(a) the substance of the complaint concerned the conduct of the AESO in its interpretation and application of the ISO Tariff provisions and whether the AESO’s conduct was inconsistent with the legislation, the ISO Tariff or otherwise amounts to improper, unfair or discriminatory treatment of Enel; and
(b) the AUC had not previously dealt with issues concerning the conduct of the AESO in its interpretation and application of the ISO Tariff provisions and whether that conduct amounted to improper, unfair or discriminatory treatment of Enel.
The AUC concluded that it could proceed to deal with the complaint insofar as it related to allegations with respect to the conduct of the AESO because none of the grounds listed in EUA section 26(2) were met. Accordingly, the AUC did not dismiss the complaint pursuant to that provision.
Duress
The AUC noted Enel’s arguments that:
(a) Enel did not raise the issue of cost classification in the CRR Wind Farm NID application because, by that time, it was under duress, with the CRR Wind Farm having been constructed, but not yet connected to the AIES, due to the AESO’s repeated changes in plans; and
(b) Enel had an obligation to mitigate its damages and obtain the fastest approval possible, all the while maintaining its reservation of right to contest the AESO’s construction contribution determination.
Although Enel did not address the applicable legal test for economic duress, given Enel’s assertion that it was under duress, the AUC set out the test for economic duress in a commercial setting. Establishing economic duress requires establishing the following elements:
(a) an illegitimate form of pressure;
(b) which was sufficient to overcome the will of the protesting party, such that it vitiated any consent or agreement; and
(c) which caused the entering into of the challenged transaction.
In other words, economic duress requires that there be illegitimate pressure, which only leaves the threatened party with no practical alternative but to comply with the demand.
The AUC noted its finding in Decision 3473-D02-2015, that “a market participant seeking a new connection to the transmission system has no inherent guarantee that it will receive system access service by a specified target in-service date.”
Based on the above, the AUC found that:
(a) Enel’s desire to connect the CRR Wind Farm to the AIES as quickly as possible and to agree with proposals made by the AESO to facilitate that desire did not alone constitute economic duress; and
(b) Enel failed to satisfy its evidentiary burden by providing any evidence of illegitimate pressure by the AESO.
Section 47 of the Transmission Regulation
Section 47 of the Transmission Regulation provides that in its consideration of an ISO Tariff application, the AUC must ensure:
(a) the just and reasonable costs of the transmission system are wholly charged to Distribution Faciltiy Owners (“DFOs”) [s. 47(a)], and
(b) owners of generating units are charged local interconnection costs to connect to the transmission system and are charged a financial contribution toward transmission system upgrades and for location-based cost of losses [[s. 47(a)].
Enel argued that the majority of the facilities required for the CRR Wind Farm interconnection were system-related.
The AUC rejected these arguments, finding that Enel’s construction contribution, as determined by the AESO, was consistent with the requirements of section 47 of the Transmission Regulation. In this regard, the AUC found that:
(a) there was nothing in the plain and ordinary meaning of the Transmission Regulation provisions that required that the costs of a project that the AESO has at some time referred to as a system project, be a cost recovered under subsection 47(a), to the exclusion of whole or partial cost recovery as a local interconnection cost recovered from the power plant owner under subsection 47(b); and
(b) therefore, the AUC was not persuaded that the AESO had charged costs to Enel in a way that violates the categorization principles for cost recovery outlined in Section 47 of the Transmission Regulation.
The AUC further found that the exercise of classifying costs as either participant-related or system-related was an approach that required the AESO to make classifications based on “shades of grey.” When determining the cost allocation of a connecting market participant, the initial presumption is that costs should be classified as participant-related, unless clearly demonstrated otherwise.
Section 8 of the 2011 ISO Tariff Section 8
Subsections 2 of Section 8 of the ISO Tariff
Subsection 2 of section 8 of the 2011 ISO Tariff states:
2 The costs of a connection project for a market participant will be those costs reasonably associated with facilities that:
…
(b) are required to:
(i) provide system access service to a new … point of supply; … and
(c) are reasonably required to meet the market participant’s:
(i) demand and supply forecast; and
(ii) reliability and operating requirements.
The AUC found that Enel failed to establish that the facilities required for the CRR Wind Farm interconnection were in excess of what was required, or that requiring Enel to pay for the cost of the contested facilities would yield a discriminatory, arbitrary, or unjust result.
In coming to this conclusion, the AUC explained that it relied on the principle of cost causation to determine if the AESO cost contribution decision was discriminatory or unjust. The AUC noted that at present, the CRR Wind Farm was the only project using the contested facilities and these facilities were constructed after the AESO received an interconnection request from Enel.
The AUC found that, in this case, the AESO followed an established classification framework that started with the assumption that the CRR Wind Farm interconnection costs were participant-related, which was consistent with the fact that the CRR Wind Farm interconnection facilities would not have been built but for the construction of the CRR Wind Farm.
Subsection 3(3)(b) of the ISO Tariff
Subsection 3(3)(b) identifies when the costs associated with radial transmission facilities will qualify as system-related costs. It states:
(3) System-related costs will be those costs related to a connection project including non contiguous components of the project and any costs associated with:
…
(b) radial transmission facilities which, within five (5) years of commercial operation, are planned to become looped as part of a critical transmission development or regional transmission system project:
(i) in the ISO’s most recent long-term transmission system plan;
(ii) in a needs identification document filed with the Commission; or
(iii) as the ISO reasonably expects will be required in the future;
…
The AUC found that for subsection 3(3)(b) of Section 8 of the ISO Tariff to apply, as it existed in 2011, the evidence must establish that a plan to loop the CRR Wind Farm interconnection within five years of its commercial operation existed at the date the AUC issuing the permits and licences for those facilities.
The AUC found that Enel failed to provide such evidence. Therefore, the AUC concluded that Enel’s construction contribution was not determined contrary to subsection 3(3)(b) of Section 8 of the ISO Tariff.
Decision
For the reasons summarized above, the Commission dismissed Enel’s complaint against the AESO under Section 26 of the EUA.
