In a landmark and long anticipated decision, on July 27, 2015, the Alberta Utilities Commission (AUC) released its 217-page decision in Market Surveillance Administrator allegations against TransAlta Corporation et al., Mr. Nathan Kaiser and Mr. Scott Connelly, Decision 3110-D01-2015 (Decision). In the Decision, the AUC found that TransAlta Corporation, TransAlta Energy Marketing Corp. and TransAlta Generation Partnership (collectively, TransAlta) engaged in conduct that was contrary to the fair, efficient and openly competitive operation of Alberta's energy market. Specifically, the AUC found that TransAlta had timed the outages at its coal-fired generating units on the basis of market conditions, which restricted or prevented a competitive market response and which manipulated market prices away for a competitive market outcome, contrary to section 2(h) and section 2(j) of the Fair, Efficient and Open Competition Regulation (FEOC Regulation) and section 6 of the Electric Utilities Act.

The allegations against the individual traders at TransAlta (Kaiser and Connelly), were dismissed on the basis that there was insufficient evidence against Connelly and Kaiser's defence of due diligence had been established.

BACKGROUND

Alberta's Market Surveillance Administrator (MSA) alleged that in November and December, 2010 and February 2011, TransAlta intentionally took certain coal-fired generating units owned by TransAlta, that were subject to power purchase arrangements (PPAs), offline for repairs during periods of high demand when TransAlta had the option to delay such repairs until periods of lower demand. Specifically, the MSA alleged that TransAlta engaged in this conduct to drive up electricity prices to benefit its portfolio. The MSA asserted that this conduct restricted or prevented competition and restricted or prevented a competitive response and manipulated market prices away from a competitive market outcome. The MSA further submitted that TransAlta did not have effective internal compliance policies and practices to prevent anti-competitive conduct from occurring. It argued that TransAlta's practices were substandard and in breach of its obligation to conduct itself in a manner that supports the fair, efficient and openly competitive operation of the market as required by section 6 of the Electric Utilities Act.

The MSA also alleged that Kaiser and Connelly, who were traders at TransAlta during the relevant periods of time, had non-public information regarding the capability of certain TransAlta generating units to produce electricity in 2011 and improperly used that non-public information to trade in Alberta's electricity market.

AUC DECISION

After a three-week oral hearing involving the testimony of multiple fact and expert witnesses, and after considering extensive written argument, the AUC found that TransAlta breached sections 2(h) and 2(j) of the FEOC Regulation and therefore breached section 6 of the Electric Utilities Act. In rendering its decision, the AUC made the following findings:

  1. On four separate occasions, 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 PPA
  2. TransAlta could have deferred each of the outage events to off-peak hours, but instead chose to take them during peak or super-peak hours to maximize its own portfolio
  3. TransAlta's timing of outages increased average pool prices from what they would otherwise have been had the outages been scheduled to commence on off-peak hours
  4. For each of the four outage events, TransAlta restricted or prevented a competitive response from the respective PPA buyers, contrary to section 2(h) of the FEOC Regulation and, therefore, section 6 of the Electric Utilities Act
  5. For each of the four outage events, TransAlta manipulated market prices away from a competitive market outcome, contrary to section 2(j) of the FEOC Regulation and, therefore, section 6 of the Electric Utilities Act
  6. TransAlta failed to establish the defences of due diligence or officially induced error
  7. TransAlta failed to demonstrate that the MSA's investigation into the outage events or its enforcement steps against TransAlta was an abuse of process

Central to the AUC's decision was the finding that TransAlta had developed and approved a "Portfolio Bidding Strategy" which sought to generate higher revenues for TransAlta by implementing two strategies: economic withholding and discretionary outages. As a result, the AUC found that TransAlta's timing of outages was based on advancing its bidding strategy rather than on the condition of the units themselves or the operational, safety or environmental factors associated with the units. The AUC further relied on "clear, cogent and convincing evidence" that TransAlta could have deferred each of the outage events to off-peak hours but chose instead to take the outages during peak and super-peak conditions to maximize its portfolio.

CONCLUSION

The Decision provides an important and extensive analysis of the interpretation and application of the FEOC Regulation and the Electric Utilities Act along with a detailed history of PPA's and the Alberta deregulated electricity industry. As a result, the Decision carries important implications for all market participants in how they conduct their affairs in Alberta's electricity market.

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