Capital Power Corporation 1200 10423 101 Street NW Edmonton, AB T5H 0E9 www.capitalpower.com June 7, 2018 FILED ELECTRONICALLY capacitymarket@auc.ab.ca Alberta Utilities Commission Eau Claire Tower 1400, 600 Third Avenue SW Calgary, Alberta T2P 0G5 Attention: Mr. Carl Fuchshuber, Director, Capacity Market Dear Mr. Fuchshuber: Re: Bulletin 2018-09 Consultation initiated for changes to AUC Rule 017, to reflect amendments to the Electric Utilities Act AUC Rule 017: Procedures and Process for Development of ISO Rules and Filing of ISO Rules with the Alberta Utilities Commission Initial Comments of Capital Power Corporation On May 14, 2018, the Alberta Utilities Commission ( AUC or the Commission ) issued draft AUC Rule 017: Procedures and Process for Development of ISO Rules and Filing of ISO Rules with the Alberta Utilities Commission (the draft Rule ). Capital Power Corporation ( Capital Power ) has reviewed the draft Rule and provides the following comments for consideration. Enclosed please find Capital Power s initial comments on the draft Rule (Attachment 1). At this time, Capital Power does not believe that a second stakeholder consultation meeting on Rule 017 is required, but requests the opportunity to review an updated draft and provide written comments ahead of finalization. In addition, Capital Power provides the following general comments for the Commission s consideration. General Comments 1. The provisional rule approval process for the first Independent System Operator ( ISO ) capacity market rules must be clearly scoped and adhere to clear timelines to provide certainty for all market participants. Amendments proposed to the Electric Utilities Act ( EUA ) in section 20.22 of Bill 13: An Act to Secure Alberta s Electricity Future ( Bill 13 ), establish a provisional rule approval process for the first ISO rules relating to the capacity market and grant the AUC authority to direct that an ISO rule be considered under section 20.21 if, in the Commission s opinion, the ISO rule is not essential for the establishment or operation of the capacity market 1. 1 Bill 13: An Act to Secure Alberta s Electricity Future, p. 21.
In the interest of ensuring an efficient and focused process for provisional approval of the first capacity market rules, it is important that the Commission engage stakeholders, including the ISO, at the outset of the process to determine appropriate scope and timelines. As such, Capital Power supports the AUC s proposal at the May 31, 2018 Rule 017 Consultation Meeting to open the provisional approval process early and solicit stakeholder views on the issues to be examined in the provisional approval process and the approval criteria. This will help ensure provisional rules are approved in a timely manner, allowing ISO implementation activities to proceed and providing certainty to all market participants in advance of and preparation for the first auction. In conjunction with a clearly defined scope, Capital Power recommends the AUC establish firm timelines for the provisional rule approval process, considering the pre-qualification for the first auction is expected to commence in November 2019. 2. The risk of retroactive rule-making should be reduced, if not, eliminated. Bill 13 would potentially allow the AUC some limited ability to make orders regarding capacity market rules that apply on a retroactive basis. This ability applies to both provisional and going forward rules. The threat of retroactive rule changes is problematic for all investors, existing and new. It represents an unacceptable and unnecessary risk that, from an investor perspective, is unmanageable and as such will be accounted for by capacity providers in their bids, likely increasing costs to consumers, or worse, result in insufficient investment levels that may have a negative effect on reliability. Therefore, Capital Power submits that retroactive rule-making must be avoided. Clarity in this respect could be provided by the AUC in Rule 017 by specifying that that the first set of capacity market rules approved on a provisional basis will not be considered interim and/or subject to retroactive adjustment based on the results of the 24-month approval process under section 20.21 and that any changes that result would apply on a prospective basis only. 3. In the interest of regulatory efficiency, recognition should be given to the ISO stakeholder consultation process in approving ISO rules. Capital Power recommends establishing an abbreviated rule approval process in cases where an ISO stakeholder consultation process has resulted in undisputed, collective support of a proposed rule or package of rules. Such a process would allow the Commission to avoid repeating a consultation process and ensure efficient use of agency and stakeholder time and resources, while also avoiding delay in implementation of rules, ensuring greater certainty for market participants. To be clear, Capital Power is not recommending the standard ISO Rule complaint process be removed or modified; that process should continue to provide stakeholders with an avenue to challenge rules approved by the Commission. Capital Power appreciates the Commission s responsibility to perform an independent review, however, in instances where the ISO has conducted a lengthy and comprehensive consultation process that has resulted in the full support of stakeholders, it would be inefficient for the AUC to re-open all aspects of a rule package in the hearing process. As such, Capital Power submits that the AUC should exercise its discretion, particularly in the case of the provisional capacity market rule approval, to give deference to the results of ISO consultation. Re-opening all aspects of a rule package would diminish the value of the ISO performing robust consultation and could discourage stakeholders from fully engaging in ISO consultation initiatives. Assuming the ISO has conducted appropriate consultation resulting in collective support, an expedited rule approval process should follow. This would help balance the AUC s obligation of review and responsibility to foster regulatory efficiency. Conclusion Respectfully, Capital Power requests that the AUC: Clearly scope the provisional rule approval process in consultation with agencies and stakeholders, and conduct that process along a clearly established timeline; Reduce or eliminate the risk of retroactive rule-making as it applies to capacity market rules both provisional and going forward ; and 2
Formally recognize the results of the ISO s stakeholder consultation process and other potential opportunities to abbreviate the rule approval process and ensure regulatory efficiency. Capital Power appreciates the opportunity to participate in the AUC s stakeholder engagement process. Should you have any questions, or wish to discuss, please contact me at (403) 717-8162. Regards, Capital Power Corporation Jason Comandante, Vice President, Regulatory and Environmental Policy, Capital Power Attachment 1- Comment Matrix of Capital Power re: AUC Rule 017 Amendments 3
Comment Matrix of Capital Power Amendments to AUC Rule 017: Procedures and Process for Development of ISO Rules and Filing of ISO Rules with the Alberta Utilities Commission SECTION Part 1: General Matters Section 1 COMMENTS Part 2: Procedures and process for development of proposed rules and application for Commission approval Section 2 Section 3 Section 4 Section 4 sets out an effective and transparent process for issuing notice of proposed rule development. However, Section 4 does not specify any notice requirements for the ISO with respect to issuing notice of its decision not to develop a proposed rule based on a proposal received under Section 20.81 of the Electric Utilities Act ( EUA ). Capital Power believes that Section 4 could be enhanced by adding a requirement for the Independent System Operator (the ISO ) to issue, at minimum, written notice on its website when it determines that an issue does not require a proposed rule. Adding such a requirement will create an expectation that the ISO, in instances where they determine a proposed rule is not necessary, is required to provide written justification to stakeholders of their decision. Section 5 Section 6 Section 6 describes the consultation process that the ISO must adhere to in the development of proposed rules. Draft subsection 6.1 states that [u]pon receipt of any request to participate in consultation, the ISO must: (a) form a working group or working groups composed of any parties who submitted a request to participate in consultation. The language at draft subsection 6.1 is broad and should be clarified to ensure that it is not applied too prescriptively. Capital Power recommends adding the proposed language denoted in red font as follows: Upon receipt of any request to participate in consultation in response to a Notice issued under Section 4 with respect to a proposed ISO rule, the ISO must: Capital Power recommends that language be added to Section 6 requiring that all written comments provided to the ISO as part of the consultation process with respect to a proposed rule (whether from the Market Surveillance Administrator ( MSA ), market participants, interested parties, and/or other agencies) must be posted publicly by the ISO. While this is largely in-line with current practice, making it a requirement in Rule 017 will ensure consistency and transparency. At Section 8 of current Rule 017, it stipulates that [t]he ISO must consider the comments received in response to a letter of notice and prepare a reply to the comments, including whether the ISO has made changes to the draft ISO rule attached to a letter of notice. Further at Section 10, it stipulates that [t]he ISO s reply must be sent to market participants, or other persons who submitted comments and must be posted on the ISO website. Capital Power believes that the requirement to respond to comments and post replies publicly is a critical element of Rule 017 that ensures transparency and understanding. Such requirements must be retained. As Page 1 of 6
such, language should be added to new Section requiring the ISO to consider all comments received and to publicly post a response. To ensure regulatory efficiency and, in particular, that the level of ISO consultation is commensurate with the materiality of a proposed new rule or amendment to or removal of an existing rule, consideration should be given to enabling the ISO to exercise discretion in establishing the level and form of consultation undertaken (i.e. working groups or an alternative forums) as well as the composition of members. There are circumstances where working groups may not be appropriate and where the ISO may need to exercise discretion in to determining the best approach. Section 7 With respect to subsection 7.2 (b), Capital Power believes that the question of whether a rule relates to the capacity market or the electricity market creates an unhelpful and unnecessary separation of the two markets which is both counter to the way they are being designed and the way they will ultimately function and operate. It is imperative that the Commission continue to consider market rules within the context of the entire electricity market, which includes the forward capacity market, the real-time energy market, and the ancillary services market. While each market operates with distinct characteristics, they are highly interrelated and will together work to achieve the goals of legislation. Ignoring this interrelation in the consideration of market rules creates an unnecessary separation that could lead to major unintended consequences. To address this issue, Capital Power recommends changing the language of 7.2 (b) as follows: an explanation of whether how the proposed rule impacts and relates to: (i) the capacity market and why; or (ii) the electricity market and why ; and/or (iii) the ancillary service market and why;. The intention of allowing the ISO to specify whether a proposed capacity market rule will be in effect for a fixed term under Section 7.2 (c) remains unclear. Capital Power recognizes that key capacity market parameters the demand curve, Cost of New Entry ( CONE ) and net-cone (perhaps among others) will need to be developed with stakeholder and third-party input, updated regularly (i.e. annually), and approved by the Commission. However, Capital Power believes that the foundation for these calculations what ultimately gets put in to market rules should be general enough as to allow these types of updates to be approved by the AUC without re-opening or changing of market rules since the ISO can re-open a market rule as required if they identify an issue with it. Similarly, the Commission has the ability to approve a rule for a fixed period as required. Based on the above, Capital Power sees no purpose for subsection 7.2 (c) and suggests that it be removed. Investors require certainty regarding the market framework and clarity of the market rules in order to build and operate long-term assets with the confidence that, given their longevity, the market framework will not be re-opened subjecting these investments to material and unnecessary risk from changes on a continual or recurring basis. Capital Power supports subsection 7.2 (e) and recommends adding the following language a copy of any analysis conducted or commissioned by the ISO supporting the proposed rule, with a description of assumptions and methodology and accompanying non-commercially sensitive data. As it relates to subsection 7.2 (h), Capital Power reiterates the support expressed in its cover letter regarding the AUC s proposal to commence the provisional rule approval Page 2 of 6
process early and solicit stakeholder views on issues to be examined as well as the approval criteria to be used. A key element of the approval criteria that warrants discussion is ensuring a reliable supply of electricity at a reasonable cost to customers. Early discussion will help ensure provisional rules are approved in a timely manner, allowing ISO implementation activities to proceed and providing certainty to all market participants in advance of the first auction. Consistent with requirements of the EUA, Capital Power recommends adding an additional requirement at Subsection 7.2 requiring that an ISO application for approval of a proposed rule must also include a description of how the proposed rule is not technically deficient. Part 3: Procedures and process for development of proposed provisional rules and proposed initial rules and application for Commission approval Section 8 Section 9 Section 10 Capital Power is unclear of the purpose for Section 10.2. It is Capital Power s understanding that the provisional rule approval process will only be used for provisional approval of first ISO rules relating to the capacity market. As such, Capital Power is not aware of any circumstances whereby a proposal received by the ISO under Section 20.81 of the EUA would require the ISO to establish a provisional rule and not a permanent rule subject to full approval. Allowing such an option as specified in at subsection 10.2 only creates further uncertainty as to what items will be in scope of the provisional proceeding to approve the first set of capacity market rules. For these reasons, Capital Power requests that subsection 10.2 should be removed. Section 11 Section 12 Many of the comments below raise similar issues as identified in the comments above with respect to Section 6. Nonetheless these comments are repeated below in the context of Section 12. Section 12 describes the consultation process that the ISO must adhere to in the development of proposed provisional rules. Subsection 12.1 states that [u]pon receipt of any request to participate in consultation, the ISO must: (a) form a working group or working groups composed of any parties who submitted a request to participate in consultation. The language at subsection 12.1 is broad and should be clarified to ensure that it is not applied too prescriptively. Capital Power recommends amending the proposed language as follows: Upon receipt of any request to participate in consultation in response to a Notice issued under Section 10 with respect to a proposed provisional ISO rule, the ISO must: Capital Power recommends that language be added to Section 12 requiring that all written comments provided to the ISO as part of the consultation process with respect to a proposed rule (whether from the Market Surveillance Administrator ( MSA ), market participants, interested parties, and/or other agencies) must be posted publicly by the ISO. While this is largely in-line with current practice, making it a requirement in Rule 017 will ensure consistency and transparency. At subsection 8 of current Rule 017, it stipulates that [t]he ISO must consider the comments received in response to a letter of notice and prepare a reply to the Page 3 of 6
comments, including whether the ISO has made changes to the draft ISO rule attached to a letter of notice. Further, at current Section 10, it stipulates that [t]he ISO s reply must be sent to market participants, or other persons who submitted comments and must be posted on the ISO website. Capital Power believes that the requirement to respond to comments and post replies publicly is a critical element of Rule 017 that ensures transparency and understanding. Such requirements must be retained. As such, language should be added to new Section 12 requiring the ISO to consider all comments received and to prepare and public post its reply. To ensure regulatory efficiency and, in particular, that the level of ISO consultation is commensurate with the materiality of a proposed new rule or amendment to or removal of an existing rule, consideration should be given to enabling the ISO to exercise discretion in establishing the level and form of consultation undertaken (i.e. working groups or an alternative forums) as well as the composition of members. There are circumstances where working groups may not be appropriate and where the ISO may need to exercise discretion in to determining the best approach. Section 13 Capital Power supports draft Rule 017 s recognition of the significant consultation that has been undertaken by the ISO with respect to the capacity market design since June 2017 and the ability for the ISO to refer to working group consultations that took place in order to meet the requirements for consultation on a proposed provisional rule. Such an approach is necessary to ensure an effectively scoped provisional rule approval proceeding and timely approval of the provisional rules for the first two capacity auctions. Capital Power has been an active participant in the ISO s capacity market design consultations and recognizes the significant and meaningful efforts that have been made to date by the ISO and stakeholders with respect to developing the capacity market design. As mentioned in its cover letter, Capital Power supports the AUC s proposal to commence the provisional rule approval process early and solicit stakeholder views on the scope of issues and the approval criteria. A preliminary discussion of scope with stakeholders will ensure an efficient provisional approval process. Section 14 Many of the comments below raise similar issues as identified in the comments above with respect to Section 7. Nonetheless these comments are repeated below in the context of Section 14. With respect to subsection 14.2 (b), Capital Power believes that the question of whether a proposed provisional rule relates to the capacity market or the electricity market creates an unhelpful and unnecessary separation of the two markets which is both counter to the way they are being designed and the way they will ultimately function and operate. It is imperative that the Commission continue to consider market rules within the context of the entire electricity market, which includes the forward capacity market, the real-time energy market, and the ancillary services market. While each market operates with distinct characteristics, they are highly interrelated and will together work to achieve the goals of legislation. Ignoring this interrelation in the consideration of market rules creates an unnecessary separation that could lead to major unintended consequences. To address this issue, Capital Power recommends changing the language of 14.2 (b) as follows: an explanation of whether how the proposed rule impacts and relates to: Page 4 of 6
(i) the capacity market and why; or (ii) the electricity market and why ; and/or (iii) the ancillary service market and why;. Capital Power understands that the first set of provisionally approved capacity market rules will apply only for a fixed term (i.e. the first two auctions). Capital Power is unclear, however, in what circumstances the ISO would specify that some provisionally approved rules would be put in to effect for different term lengths than others given the requirement under Bill 13 that provisionally approved rules will be subject to the full approval process after 24 months. The potential for the effective dates of different rules to be misaligned creates the potential for needless uncertainty during the market transition and major scoping issues for the future full approval process. For these reasons, Capital Power suggests removing subsection 14.2 (c). If the Commission disagrees this question should form part of the scoping discussions in the proposed early opening of the provisional proceeding. Capital Power supports subsection 14.2 (e) and recommends adding the following language: a copy of any analysis conducted or commissioned by the ISO supporting the proposed rule, with a description of assumptions and methodology and accompanying data. As it relates to subsection 14.2 (h), Capital Power reiterates its supports expressed in its cover letter regarding the AUC s proposal to commence the provisional rule approval process early and solicit stakeholder views on issues to be examined during the provisional approval process as well as the approval criteria to be applied. A key element of the approval criteria that warrants discussion is ensuring a reliable supply of electricity at a reasonable cost to customers. Early discussion will help ensure provisional rules are approved in a timely manner, allowing ISO implementation activities to proceed and providing certainty to all market participants in advance of the first auction. It is unclear why subsection 14.2 (j) requests that the ISO s targeted capacity procurement volumes for the first two capacity market auctions be included as part of the provisional rule approval application. Please provide additional rationale. If subsection 14.2 (j) is retained in new AUC Rule 017, Capital Power believes that the ISO s targeted capacity procurement volumes should be accompanied by the target reliability level expressed in Expected Unserved Energy along with the ISO explanation of how it set the reliability level. Consistent with requirements of the EUA, Capital Power recommends adding language to subsection 14.2 requiring that an ISO application for approval of a proposed rule must also include a description of how the proposed rule is not technically deficient. Part 4: Application for Commission approval of expedited rules Section 15 Section 16 Section 17 See comments below re: Section 18. Section 18 Capital Power believes that Section 18 needs to be strengthened to ensure that expedited rule filings are communicated to market participants in a timely manner and that they are ultimately subject to meaningful ISO consultation and full AUC approval. Page 5 of 6
Capital Power recommends adding language to Section 17 or 18 specifying that the ISO must issue a notice to market participants when it determines that an expedited rule filing is required. Capital Power suggest the following language: When the ISO identifies an issue, that, in the opinion of the ISO, may require an expedited rule, the ISO must issue written notice to the Market Surveillance Administrator, market participants, and other interested parties as soon as practicable and must post the notice on the ISO s website. Capital Power recommends adding language to Section 18 specifying that once an expedited rule has been approved by the Commission (such that the urgency of the AESO s expediated filing has been alleviated), the AESO must engage in consultation and seek approval with the Commission as per Part 2. Page 6 of 6