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Alberta removes guidelines on economic withholding of electricity resources

Alberta's electricity market overseer is scrapping guidelines that govern the economic holding of resources as the province remakes its market structure. The decision, issued May 26 and effective immediately, comes after an inquiry that was launched about a year-and-a-half prior. In late 2015, the Alberta Market Surveillance Administrator, or MSA, issued a notice planning a stakeholder meeting to discuss a possible "refresh" of its Offer Behavior Enforcement Guidelines based on regulatory decisions and other market activities.

One of those market activities was a finding by provincial regulators in 2015 that TransAlta Corp. violated market rules on six occasions in 2010 and 2011 by timing outages at its coal-fired power plants in Alberta on the basis of market conditions, deliberately taking units out of service during times of high demand. The outages allowed TransAlta to benefit from forward trades made several months previously. TransAlta agreed to a settlement under which it paid more than C$56 million in penalties and the disgorgement of profits.

The MSA's notice on the guidelines was issued a few weeks after the Alberta Utilities Commission approved the TransAlta settlement. The proceeding was delayed for development of the province's Climate Leadership Plan, and resumed in March. The original guidelines on economic withholding required dynamic efficiency gains from innovation and investment to offset any static efficiency losses caused by the withholding, the MSA explained in its May 26 notice. The gains were expected to lead to a net efficiency gain over time due to competition in the market.

Revoking the guidelines, the MSA said, is "not a prohibition on economic withholding; rather, revocation is a signal to the market that the MSA will look closely at offer behavior and efficiency in the context of the legislative framework during the transition to a capacity market. The MSA is of the view that the transition poses some challenges." Alberta said last year it would develop rules to have a capacity market in place by 2021 as current market conditions have led to low wholesale prices and no signals for new investment in power generation assets. Other provincial rules are prompting power plant operators to shut down their coal-fired generating facilities.

Responding to questions and comments raised during the stakeholder process, the MSA acknowledged that it has not seen any recent exercise of economic withholding in the province's wholesale electricity market and said that had it left its guidelines in place, no withholding might occur.

Planned changes to the province's electricity market are causing uncertainty and may dampen investment, but the MSA said its removal of the guidelines will not add to that uncertainty. "Put simply, one cannot 'hold-up' investment that was already 'held-up,'" it said. The MSA added that it would prefer that government market participant conduct be determined through a rulemaking process, not through its own issuance of guidelines.

"Guidelines are not intended to restate the law; guidelines are not market rules," the MSA said.