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Market Surveillance Administrator Application for Approval of a Revised Settlement Agreement Between the Market Surveillance Administrator and the Balancing Pool (AUC Decision 23828-D02-2020)

Link to Decision Summarized

Balancing Pool – Revised Settlement Agreement


In this decision, the AUC considered an application by the Market Surveillance Administrator (“MSA”) for approval of a revised settlement agreement between the MSA and the Balancing Pool (“BP”), under sections 44 and 51(1)(b) of the AUC Act, and for an order requiring the BP to comply with particular monitoring requirements set out in the revised settlement agreement. The AUC approved the revised settlement agreement as submitted.

Background

On August 15, 2018, the MSA filed an application with the AUC under sections 44 and 51(1)(b) of the AUC Act, requesting that the AUC consider and approve the terms of a settlement agreement between the MSA and the BP.

The MSA filed a revised settlement agreement, between the MSA and the BP (“revised 2019 agreement”) on October 8, 2019, pursuant to subsection 44(2) of the AUC Act. Per subsection 51(1)(b) and section 52 of the AUC Act, the MSA advised that the terms of the revised 2019 agreement consisted of the parties’ agreement that (i) the BP contravened section 85 of the Electric Utilities Act (“EUA”), (ii) an administrative penalty is not in the public interest, (iii) section 2 of the BP Regulation had not been breached and (iv), that the BP would adhere to a new proposed monitoring procedure set out in the settlement agreement.

The MSA requested that the AUC approve the revised 2019 agreement, confirm the above findings, and issue an order that the BP comply with the monitoring requirements set out in the revised 2019 agreement.

Relevant statutory and regulatory provisions

Pursuant to Part 5 of the AUC Act, the MSA has the mandate to investigate matters and undertake activities, including enforcement, to address contraventions of the EUA and the regulations under that act, and to address conduct that does not support the fair, efficient and openly competitive operation of the electricity market.

Following the completion of its investigation, the MSA has the mandate to choose the enforcement tool that best fits the events under consideration. It may choose to enter into a settlement agreement (sections 44 and 51(1)(b) of the AUC Act). If the MSA reaches a settlement, it must file that settlement agreement with the AUC for approval.

Subsection 56(1) of the AUC Act requires the AUC to make an order regarding a matter that the MSA has submitted before it under subsection 51(1)(b) within 90 days after the conclusion of a hearing or other proceeding. Under subsection 56(4), the Commission may provide direction, or make any order it considers appropriate, in respect of such matters. The reference to “other proceeding” in section 56 of the AUC Act includes a settlement process pursuant to section 44.

AUC findings

The central issue in this proceeding was whether approval of the revised 2019 agreement was in the public interest.

A two-stage process was established and confirmed in Decision 23535-D01-2018 and in prior decisions to assess whether a negotiated settlement and any associated administrative penalties should be approved. First, the AUC must be satisfied that a contravention occurred. If this criterion is met, the second step requires it to determine whether the settlement falls within a range of acceptable outcomes.

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

Once the BP became the deemed owner of power purchase agreements (“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 evidence before the AUC is that the BP failed to take timely action to mitigate losses by continuing to hold the Sundance and Battle River PPAs rather than terminating them as soon as possible. Its failure to do so constituted a failure to manage these PPAs in a commercial manner, contrary to subsection 85(1)(b) of the EUA. The parties to the revised 2019 agreement agreed that this contravention occurred. After conducting its own independent assessment of the facts presented in this proceeding, the AUC confirmed the contravention.

The public interest and reasonableness of the proposed settlement

The AUC noted it must decide whether the proposed settlement falls within a range of acceptable outcomes appropriate to the facts and the applicable sanctioning principles; it is not determining whether it might have chosen to impose the same sanctions itself.

The AUC found it helpful (as it did in Decision 23535-D01-2018) to consider the factors listed in Rule 013 in assessing the reasonableness of the revised 2019 agreement, bearing in mind that sanctions are intended to be protective and preventative, but not punitive. The AUC noted that the following factors are particularly relevant in this case.

Harm – the BP’s misconduct under consideration resulted in the BP incurring significant losses by failing to terminate, as soon as possible, the Sundance and Battle River PPAs, which, by definition, were unprofitable. It is clear to the AUC that consumers were harmed as a result of this contravention.

Isolated or recurring problem – the AUC accepted that the BP neither agreed nor did the MSA claim, that the BP remained in contravention of subsection 85(1)(b). Nevertheless, for as long as the BP holds PPAs, it could again, at some point in the future, be in breach of that section of the act.

Unprecedented and unexpected event – the AUC agreed that these circumstances were unprecedented and unusual and that they affected both the timing and the ability of the BP to respond to the termination notices it had received, and left it unexpectedly as the PPA buyer for the Sundance and Battle River PPAs

Economic benefit – the BP is a corporation established in section 75 of the EUA to carry out the powers and duties set out therein. Because it is a market participant, as that term is defined in the EUA, it is also required by section 6 of that act to conduct itself in a manner that supports the fair, efficient and openly competitive operation of the market. The revised 2019 agreement states specifically that there is no evidence that “the BP acted out of self-interest, bad faith or personal gain” nor was there evidence that “the BP was involved in trading violations or misuse of information for commercial advantage.” The AUC accepted the MSA’s findings in this regard.

The AUC found that the proposed terms of the revised 2019 agreement were fair, reasonable and fell within a range of acceptable outcomes. Because the resulting settlement adequately addressed the contraventions of subsection 85(1)(b) of the EUA, the approval of the revised 2019 agreement was in the public interest.

Order

The AUC:

(a)      approved the revised 2019 agreement between the MSA and the BP; and

(b)      directed the BP to comply with the reporting and monitoring requirements set out in the settlement agreement.

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