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Alberta Electric System Operator Application for Approval of Amended Section 306.7 of the ISO Rules, AUC Decision 28081-D01-2024

Link to Decision Summarized

Electricity – ISO Rules

Application

In this application, the AESO requested approval of; amendments to s 306.7 of the independent system operator (“ISO”) rules (“ISO Rules”), Mothball Outage Reporting; consequential amendments to s 2.4 of the ISO Tariff; and, amendments to the definitions of “mothball outage” and “supply transmission service” in the Consolidated Authoritative Document Glossary (“Glossary”). The AESO proposed a number of substantive amendments to the existing s 306.7, including matters related to maximum mothball outage duration, mothball outage notification, transmission access, subsequent mothball outages, mothball outage cancellation, and reporting of mothball outages.

Decision

The AUC denied the application because it was not satisfied that the AESO’s proposed amendments met the criteria specified in s 20.21(2) of the Electric Utilities Act (“EUA”). The AUC was not satisfied that the proposed amended rule: (a) is not technically deficient, (b) supports the fair, efficient and openly competitive operation of the electricity market (“FEOC”), and; (c) is in the public interest.

Pertinent Issues

Mothball Outage Rule and Rationale for Proposed Amendments

The current s 306.7 of the ISO Rules enables pool participants to place source assets on mothball outages, which permits the temporary reduction of the available capability of a source asset when forecasted economic conditions indicate a low likelihood of the source asset’s ability to recover its forecast avoidable costs.

Mothball outages, under both the existing and proposed s 306.7, do not affect the supply transmission service (“STS”) contract capacity of the units and mothballed units may be returned to service on short notice (i.e., three months). As a result, the AESO includes these units in its connection studies, which may result in the identification of transmission congestion that would not otherwise have occurred but for the potential return to service of a mothballed unit.

New entrants wishing to gain access to the transmission system must participate in the AESO’s new connection process, which involves an eight-month application window followed by a nine-month assessment period. If sufficient transmission capacity is available, applicants are granted access without the need for further measures. If transmission congestion is identified, access for the new entrant may be made subject to a remedial action scheme (”RAS”) or curtailment under the ISO’s Real Time Transmission Constraint Management protocol until transmission enhancements are completed.

According to the AESO, the presence of mothballed units in certain areas may act as a barrier to market entry and could potentially result in unnecessary transmission additions. The AESO submitted that the potential for an extended mothball outage, combined with the mothballed unit’s retention of STS contract capacity under the existing rule, is problematic as it may result in: (i) inefficient utilization of the transmission system and unnecessary costs to new entrants and ratepayers; (ii) lower-quality connection alternatives for new connection projects; or (iii) additional time and cost to rework the needs identification documents.

Transmission Access Treatment Proposal as Assessed Against the EUA Criteria

According to the AUC, the proposed transmission access treatment provisions in s 5 of s 306.7 of the ISO Rules were a pivotal part of the broader amendments proposed in the application. The AESO explained that, pursuant to the proposed s 5, a pool participant has the option to extend the mothball outage if the mothballed unit continues to be uneconomic. However, after the 24-month maximum duration elapses, the pool participant must decide whether to: (i) return the mothballed unit to service; or (ii) reduce its STS contract capacity if a new connection project is seeking to connect in the area and the AESO identified transmission limitations.

Under the proposed s 5(4), the pool participant would be required to reduce its STS contract capacity by the amount of capability that is mothballed, meaning that, if the entire source asset was mothballed, the asset’s STS contract capacity would be reduced to zero megawatts (“MW”). This reduction would only occur if: (a) a new project sought connection in the area of the mothballed generator; (b) the AESO anticipated that the new project, in conjunction with the mothballed unit returning to service, would cause congestion on the system; and (c) the mothballed unit elected not to return to service at that time.

The AESO explained that the proposed changes to s 5 address the “waste” in transmission capacity, the possible overbuilding of additional transmission capacity, and the creation of needless barriers to market entry by “reserving” system capacity for mothballed units that are not actually using the system’s capacity after being shut down for the initial two-year mothball period.

  • The FEOC and Public Interest Criteria

Given the intertwined nature of the FEOC and public interest criteria in this case, the AUC considered them together. The AUC held that the proposed amendments do not, on balance, support the fair, efficient, and openly competitive operation of the market and are not in the public interest.

The AUC held that a significant problem with the proposed s 5 was the lack of proportionality. The AUC concluded that, based on effectiveness factors, the mothballed unit may be required to reduce its STS contract capacity by a greater amount than the capability required to serve a new unit in the area. Further, the mothballed unit’s effectiveness factor may vary over time as a result of system changes, such as other generators or loads connecting, or changes to system configuration.

The AUC was also concerned that, should a mothballed unit that has lost its STS contract capacity apply to regain transmission access, the pool participant could expect to wait under the AESO’s new cluster assessment process up to eight months for the current application window to close and then a further nine months for the assessment to take place before being advised if sufficient transmission capacity was available. This may significantly extend the timeline of previously mothballed units to reconnect and impose additional costs on them.

The AUC recognized that maintaining the status quo has the potential to act as a barrier to new entrants, which may lead to overbuilding the transmission system. However, the proposed amendments create other concerns. The consideration of these trade-offs forms part of the overall assessment of the application, particularly respecting the FEOC component of the criteria. The AUC was also concerned that the costs associated with the proposed s 5 are unnecessarily high, which may result not only in potential unfairness to pool participants with mothballed units and inefficient use of resources, but also in a possible harm to the market under circumstances where the current mothball rule appears to offer the AESO flexibility to determine appropriate solutions on a case-by-case basis.

For those reasons, the AUC found that the proposed amendments do not support the fair, efficient, and openly competitive operation of the market and that they are not in the public interest.

  • The “Not Technically Deficient” Criterion

The determination of whether a proposed rule is technically deficient includes considerations such as whether the rule incorporates and defines fundamental concepts, articulates process steps and what is the rule’s scope. The AESO considers a technically non-deficient rule to be clear, concise and cohesive to facilitate stakeholder understanding, including being consistent with the statutory scheme.

The AUC found that the initiating condition for the reduction of STS contract capacity to zero MW contemplated in the proposed amendments was not well defined and that it failed to incorporate fundamental concepts. The proposed rule did not describe the “impacts” on the transmission system that would trigger the ISO’s notice to the pool participant under s 5(1) of the proposed rule.

In addition, absent a decision by the pool participant to discontinue the operation of the source asset after receiving notice from the AESO, it is not clear how or if the duration of the mothball outage would be affected, and how the available capability of the source asset might be affected by the ending of the mothball outage.

The AUC noted that the AESO did not address compensation for mothballed units that receive a directive to return to service. Considering that payment of generating units that provide generation in response to an AESO directive has been consistently addressed in other AESO authoritative documents, this raised concerns about inconsistency in compensation treatment.

As a result, the AUC was not persuaded that the proposed amendments are not technically deficient. First, the AUC held that the initiating condition is insufficiently defined. Further, there was a lack of specificity in the proposed provisions because the steps for a pool participant who receives notice that the ISO has identified a transmission constraint caused by a new entrant in the area were not clearly described, especially regarding the potential reduction of the mothballed unit’s STS contract capacity to zero MW. Lastly, the AUC found the lack of reference to compensation for mothballed units that are directed back to service inconsistent with other AESO authoritative documents.

In summary, the AUC refused to approve the proposed amendments to s 306.7 of the ISO Rules, Mothball Outage Reporting, the consequential amendments to s 2.4 of the ISO tariff and the definitions of “mothball outage” and “supply transmission service” in the Glossary.

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