IESOTP 276-4b General Conduct Rule (SE-112) Technical Panel February 25, 2014
Agenda • The SE-112 Process, Recap • Stakeholder Feedback: 12 Major Themes, and IESO considerations of that feedback • Proposed Market Rule 2
The SE-112 Process, Recap • In Fall, 2013, stakeholders, through written submissions, provided the IESO with input on rule elements which the IESO advised would likely provide the framework for the general conduct rule. • Using that input, the IESO drafted a strawman general conduct rule, to assist stakeholder evaluation, which was first presented to the Technical Panel on December 3, 2013. This has been referred to as the “conceptual rule”. • Since the November 29, 2013 meeting of SE-112, the SE process was extended to allow stakeholders to provide further feedback regarding the IESO’s conceptual rule through written submissions, bilateral discussions and an additional meeting of SE-112 (February 14, 2014). • The IESO’s responses and positions described in this presentation and the proposed general conduct rule, result in part from the valuable feedback gained in SE-112. 3
Stakeholder Feedback on Proposed General Conduct Rule Framework Stakeholder feedback incorporated directly into proposed GCR language: 1. Enforcement Framework for the General Conduct Rule 2. Efficient, Fair, Competitive and Reliable 3. Legitimate Business Purpose 4. Rule Applicability 5. The IESO-Controlled Grid 6. “Or Other Means” 7. “Attempts” 8. ”Abuse of Market Power” Stakeholder feedback under consideration outside of proposed GCR language: 1. Use of a Specific Rule 2. Addressing Gaps in the Market Rules 3. Limitation Period 4. Guidelines and Clarifications Today’s discussion will summarize for Technical Panel’s benefit the critical points made by stakeholders in each of these areas and IESO decisions as it affects rule language 4 For the complete set of IESO responses to stakeholder comments please visit the SE-112 Webpage.
Stakeholder Feedback Incorporated Directly into Proposed GCR Language 5
1. Enforcement Framework for the General Conduct Rule (1 of 2) • Discussions have continued on the question of how enforcement of the GCR will be conducted – the “governance” discussions. • APPrO, IESO and OEB representatives have participated. • An agreement in principle has been reached that the IESO believes is satisfactory to the parties involved. 6
1. Enforcement Framework for the General Conduct Rule (2 of 2) Proposed General Conduct Rule Enforcement Process For additional details on the proposed general conduct rule enforcement 7 process, please follow this link to the SE-112 website.
2. Efficient, Fair, Competitive and Reliable (1 of 2) • Stakeholders have concerns that the words “efficient, fair, competitive and reliable…” are unclear and present participants with significant risk and uncertainty, specifically with reference to this language, should it remain within a positive obligation component of the general conduct rule. 8
2. Efficient, Fair, Competitive and Reliable (2 of 2) On the basis of stakeholder comments the IESO has removed the positive obligation language from the proposed market rule. Additionally, all references to “efficient, fair, competitive and reliable” have been omitted. The IESO has instead framed the proposed market rule, in response to stakeholder comments, more as a set of more specific prohibitions. 9
3. Legitimate Business Purpose (1 of 2) • Some stakeholders believe that a legitimate business purpose defense clause should be part of the general conduct rule and that it should be explicit in stating that OPA procurement contracts and OEB regulation are legitimate defenses for market participant conduct. • More specifically, one stakeholder requested that language should explicitly state that legitimate business purposes include conduct that is ‘required or relatable to’ either procurement contracts as identified in the Electricity Act, 1998 or a regulation or order of the Ontario Energy Board made in accordance with s. 78.1 of the Ontario Energy Board Act, 1998. 10
3. Legitimate Business Purpose (2 of 2) The IESO has provided an explicit clause for conduct entirely or predominately connected to the provisions of an OPA contract or OEB regulation. The IESO believes that the explicit incorporation of an LBP clause within the rule itself is an exceptional measure. It also believes that entities subject to investigation under the GCR would have an opportunity to argue LBP, in any event. As discussed with stakeholders, conduct ‘relatable to’ OPA procurement contracts or OEB regulation is considered by the IESO to be overly broad. 11
4. Rule Applicability (1 of 2) • Some stakeholders commented that the general conduct rule should be applicable to the IESO and expressed questions regarding the possible exclusion of the IESO, OPA and OEFC. 12
4. Rule Applicability (2 of 2) It is not the IESO’s intention to expressly exclude any market participants from the application of this rule, nor however is the general conduct rule intended to concern itself with policy actions of government agencies. To the extent that the OPA and OEFC operate in the market as market participants, they could be captured by the general conduct rule. In light of considerations brought forth by stakeholders through written comments and in meetings with stakeholders, it has been decided that the general conduct rule can be applicable to the IESO. As noted above, the proposed general conduct rule would not apply to policy actions of the IESO, including its role in market rule amendments. 13
5. IESO-Controlled Grid (1 of 2) • A stakeholder did not support the general conduct rule’s initial application to the reliable operation of the IESO-controlled grid. • The stakeholder has the position that the operation of the IESO-controlled grid is already subject to ‘good utility practice’ – another general rule - and therefore the general conduct rule need not apply to the IESO-controlled grid. 14
5. IESO-Controlled Grid (2 of 2) After consultation with stakeholders on this subject, the IESO has omitted reference to the operation of the IESO- controlled grid from the proposed general conduct rule. While the good utility practice and general conduct rules share similarities, they do not completely overlap. However, the rule is properly situated in relation to conduct relevant to markets. 15
6. “Or Other Means” (1 of 2) • Stakeholders commented on section 1.2.4 of the conceptual general conduct rule, specifically on the inclusion of the phrase “or other means”. Some stakeholders requested that the IESO remove the phrase “or other means” from section 1.2.4 describing the term as “open - ended”, “too broad and vague” and “confusing”. 16
6. “Or Other Means” (2 of 2) Acknowledging stakeholders’ concerns on this topic, the IESO has eliminated the “or other means” phrase from the proposed general conduct rule. In order to make the proposed rule language more clear for market participants, sections 10A.1.1 to 10A.1.5 of the proposed rule describe conduct which is specifically prohibited. 17
7 . “Attempts” (1 of 1) • A stakeholder commented that the concept of “attempts” of prohibited conduct should be removed from section 1.2. As discussed at the November 29, 2013 meeting of SE-112, and again at the February 14, 2014 meeting, in some circumstances, an attempt to undermine the IESO- administered markets may be conduct that the IESO believes should be addressed, in some circumstances. 18
8 . “Abuse of Market Power” (1 of 2) • Some stakeholders have expressed concern as to the precision and pejorative nature of the concept of an abuse of market power and have suggested that the IESO include a definition of ‘market power’ within the language of the general conduct rule, if the concept remains in the rule. 19
8 . “Abuse of Market Power” (2 of 2) After consultation with stakeholders, the IESO has removed language pertaining to “abuse of market power” from the proposed general conduct rule. 20
Stakeholder Feedback Under Consideration Outside of Proposed GCR Language 21
1. Use of a Specific Rule (1 of 1) • Stakeholders have requested that the IESO pursue specific violations of the Market Rules prior to alleging a violation of the general conduct rule. In other words, stakeholders have requested that the IESO be compelled to use the general conduct rule only as a ‘rule of last resort’. The IESO’s enforcement approach will continue to be guided toward using the rule or rules that best fits the circumstances. 22
2. Addressing Gaps in the Market Rules (1 of 2) • Stakeholders commented that the IESO should continue to create market rules that prohibit specific behaviour in order to avoid reliance on the use of the general conduct rule as a ‘catch - all’ type rule. 23
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