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Market Surveillance Administrator Application for Approval of a Settlement Agreement Between the Market Surveillance Administrator and the Balancing Pool (AUC Decision 23828-D01-2019)

Link to decision summarised

Negotiated Settlement – Balancing Pool – Power Purchase Agreement

In this decision, the AUC considered the Market Surveillance Administrator (“MSA”)’s August 15, 2018 application (the “Application”) for approval of a settlement agreement (the “Settlement Agreement”) between the MSA and the Balancing Pool (“BP”), pursuant to sections 44 and 51(1)(b) of the Alberta Utilities Commission Act (“AUC Act”) regarding several power purchase agreements (“PPAs”). The AUC decided to refer the Settlement Agreement back to the parties with reasons explaining the AUC’s concerns, and giving the MSA and BP an opportunity to address those concerns.

Relevant Statutory and Regulatory Provisions

Section 44 of the AUC Act allows the MSA to enter into a settlement and, if a settlement agreement is reached, to file that agreement with the Commission for approval. Subsection 56(3) of AUC Act allows the AUC to make an order regarding a matter that the MSA has submitted before it under subsection 51(1)(b). Under subsection 56(4), the AUC may provide direction, or make any order it considers appropriate, in respect of such matters.

Termination of the Power Purchase Arrangements

Pursuant to subsection 96(3) of the Electric Utilities Act (“EUA”) a terminated PPA is deemed to have been sold to the BP, and is to be held by the BP in the capacity of a buyer for all purposes of the EUA, the regulations and the PPA. Once the BP becomes a deemed buyer of a PPA, it has the duties, inter alia, set out in paragraphs (b) and (d) of subsection 85(1) of the EUA and subsection 2(1) of the Balancing Pool Regulation.

ENMAX Corporation, a PPA buyer, gave notice of termination of its Battle River PPA to the BP in December 2015. In the spring of 2016, within a two-month period, all remaining PPA buyers also sought to terminate their PPAs. Early termination was made possible due to amendments to the Specified Gas Emitters Regulation, constituting a change of law under the PPA entitling PPA buyers to terminate the their PPAs.

Investigation and Contraventions

The Application and Settlement Agreement related to the conduct of the BP in the period following receipt of the notice of termination of the Battle River PPA, commencing in December 2015, until the Balancing Pool’s acceptance of the Keephills PPA notice of termination on December 6, 2017 and offer control on December 8, 2017.

The MSA submitted that, following its investigation, it was satisfied that the BP had breached subsection 85(1)(b) of the EUA and subsections 2(1)(g) and 2(1)(h) of the Balancing Pool Regulation. As this was a matter related to its mandate, the MSA therefore negotiated a settlement with the BP pursuant to subsection 44(1) of the AUC Act.

Commission Findings

The AUC stated that the central question was whether approval of the Settlement Agreement would be in the public interest.

Test for Assessing Negotiated Settlements

The AUC confirmed the two-stage process that had been established in prior decisions to assess whether a negotiated settlement should be approved. First, the AUC must be satisfied that a contravention occurred. If this criterion is met, the second step requires the AUC to determine whether a settlement falls within a range of acceptable outcomes.

Did the Balancing Pool Contravene Subsections 2(1)(g) and 2(1)(h) of the Balancing Pool Regulation?

Subsections 2(1)(g) and 2(1)(h) of the Balancing Pool Regulation require the BP, on receipt of notice of an extraordinary event, to conduct any investigation it determines appropriate and to assess and verify the extraordinary event. Based on the facts as presented, it is clear that the event (the amendment of the Specified Gas Emitters Regulation under Article 4.3(j) of the PPA, as amended) that resulted in the notices of termination of the PPAs was an extraordinary event as defined in subsection 1(d) of the Balancing Pool Regulation. As such, the BP had a duty to take action as required by the regulation. The AUC found that the BP declined to or did not promptly assess or verify the validity of the terminations of the PPAs.

Did the BP Contravene Subsection 85(1)(b) of the EUA?

Once the BP became the deemed owner of the PPAs, it was required by subsection 85(1)(b) of the EUA to manage these PPAs in a commercial manner during the period in which it held them. The AUC found that the BP failed to take timely action to stem the losses from the unprofitable PPAs by terminating them as soon as possible. In doing so, the BP failed to manage the PPAs in a commercial manner.

Is the Settlement within the Range of Acceptable Outcomes?

The AUC laid out several concerns that it viewed as preventing it from making a finding on whether the proposed settlement agreement fell within a range of acceptable outcomes.

The AUC’s principal concern with the settlement agreement was that it failed to stand on its own as a clear and comprehensive statement of the agreed-to facts, contraventions, and remedial measures to be taken to address past breaches and deter similar breaches going forward.

Other concerns included:

(a)      the MSA combined its application with the settlement agreement (the “combined document”), styling it as a submission that was narrative in nature, contained facts, argument and advocacy;

(b)      the combined document failed to clearly, and in one place, set out the conduct constituting the agreed-to contraventions;

(c)      discussion in the Settlement Agreement regarding the BP’s reliance on an independent agent to handle day-to-day commercial operations caused confusion;

(d)      the Settlement Agreement made no mention of any monitoring or enforcement activities undertaken by the MSA;

(e)      the parties appeared to be of different minds as to what the full scope of the Settlement Agreement entailed;

(f)      it was unclear from the Settlement Agreement how the failure to “unconditionally assume the Buyer role on a timely basis” with respect to the PPAs contravened subsections 2(1)(g) and 2(1)(h) of the Balancing Pool Regulation;

(g)       the level of detail the Settlement Agreement required of the BP in its financial reporting fell short of the level of detail provided by the BP, meaning the detail provided from one report to the next would depend largely on the discretion of the BP; and

(h)      it was unclear why the Settlement Agreement included a statement from the MSA regarding how BP’s ability to recover losses through a consumer charge or government loan did not have a direct impact on competition in the electricity market. The potential significance of the statement only heightened the AUC’s concern.

The AUC noted that the evaluation of every settlement agreement must be undertaken on a case-by-case basis. In the circumstances of this case, the AUC found that it was unable to make a finding on whether the proposed Settlement Agreement fell within a range of acceptable outcomes. Instead, the AUC indicated it would be referring the Settlement Agreement back to the parties to give them an opportunity to understand and address the AUC’s list of concerns.


The AUC ordered that the Settlement Agreement be referred back to the MSA and BP to give them an opportunity to understand and address the Commission’s concerns.

The AUC further ordered that the parties advise the AUC of how they propose to proceed in light of the Commission’s concerns.

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