Securities Law & Instruments

Headnote

Section147 - relief from requirement to pay fees and file forms in connectionwith trades which are exempt from prospectus and registrationrequirements.

StatuteCited

SecuritiesAct, R.S.O. 1990, c.S.5 as am., ss. 147.

ApplicableOntario Rule

OSCRule 45-501, s.2.3, s.7.5.

INTHE MATTER OF

THESECURITIES ACT, R.S.O. 1990,

CHAPTERS.5, AS AMENDED (THE "ACT")

AND

INTHE MATTER OF

THEINDEPENDENT ELECTRICITY MARKET OPERATOR

EXEMPTIONORDER

(Section147)

UPONthe application of the Independent Electricity MarketOperator (the "IMO") to the Ontario SecuritiesCommission (the "Commission") for an order pursuantto section 147 of the Act exempting the IMO from the requirementsto file forms and fees with the Commission pursuant to Part 7of Commission Rule 45-501;

ANDUPON considering the application and the recommendationof the staff of the Commission;

ANDUPON the IMO having represented to the Commission that:

BACKGOUND

1.the IMO is an independent, not for profit, non share capital corporationcreated by statute pursuant to Part II of the ElectricityAct, 1998 (Ontario) (the "Electricity Act");

2.the Government of Ontario has assigned the responsibility forcreating and administering the IMO-administered markets to theIMO;

3.the IMO has been allocated the statutory mandate of meeting thefollowing objects as set out in subsection 5(1) of the ElectricityAct:

(a)to exercise and perform the powers and duties assigned to theIMO under the Electricity Act, the Market Rules and the OEB Licenceas issued by the OEB;

(b)to enter into agreements with transmitters giving the IMO authorityto direct the operations of their transmission systems;

(c)to direct the operations and maintain the reliability of the IMO-controlledgrid to promote the purposes of the Electricity Act;

(d)to establish and operate the IMO-administered markets to promotethe purposes of the Electricity Act;

(e)to collect and provide to the public, information relating tothe current and future electricity needs of Ontario and the capacityof the integrated power system to meet those needs;

(f)to participate in the development of standards and criteria relatingto the reliability of Ontario's transmission systems; and

(g)to work with the responsible authorities outside of Ontario toefficiently and effectively co-ordinate the IMO's activities withtheir activities;

4.the markets administered and operated by the IMO in accordancewith the Electricity Act consist of both physical and financialmarkets;

5.the physical markets govern the real-time operation of the powersystem, allowing load and generation to be balanced, flows onthe transmission system to be within limits and voltage and frequencyto be maintained;

6.the financial markets consist of: (i) the Energy Forward Market(the "EFM"), wherein market participants canacquire financial contracts linked to the real-time energy marketon a forward basis; and (ii) the Transmission Rights Market (the"TRM"), wherein market participants can acquirefinancial contracts linked to locational price differences acrossthe interties;

7.in carrying out its objects, the IMO is empowered to and has developeda codified set of rules to govern the wholesale electricity marketplacein Ontario (collectively, the "Market Rules");

8.the provisions of the Market Rules are intended to be completecodes, covering the form and content of the transactions (collectivelythe "Contracts") to be entered into by marketparticipants in the EFM and the TRM (collectively, the FinancialMarkets");

9.the Contracts are issued by the IMO through the auction processesstipulated in the Market Rules;

10.all persons interested in becoming authorized market participantsin either or both of the Financial Markets (whether as electricityindustry participants or otherwise) must be approved in advanceby the IMO. Trades made to or among authorized market participantsin the Financial Markets are exempt from the prospectus and registrationrequirements in Ontario since all authorized market participantswill be required to meet financial thresholds that are equal tothose to be applied under Commission Rule 45-501 dealing with"accredited investors";

REGULATORYOVERSIGHT

11.The IMO has made an application pursuant to National Policy 12-201for a decision under the securities legislation of certain jurisdictionsthat the IMO be exempt from the requirements to be registeredto trade in a security and to file a preliminary prospectus anda final prospectus and to receive receipts therefore (the "MRRSApplication"). The IMO anticipates receiving a favourabledecision with respect to the MRRS Application.

12.The IMO has made a separate application (the "ExchangeApplication") to the Commission for exemptive reliefrelated to the operation of the Financial Markets as a stock exchangeand a clearing agency. This relief was sought only in Ontario,since the trading facilities of the IMO will exist only in Ontarioand all trading through the IMO will be executed only throughthe facilities of the IMO in Ontario. This relief was grantedpursuant to an order of the Commission dated March 6, 2002 (the"Exchange Order");

13.the IMO operates pursuant to the licence (the "OEB Licence")granted to it by the Ontario Energy Board (the "OEB")under the Ontario Energy Board Act, 1998 (the"OEB Act"). The OEB is the sole regulatory bodyunder the Electricity Act vested with the powers of oversightin connection with the business and/or aim of the IMO, includingits operation of the Financial Markets;

14.the IMO is bound to make certain reports to the Minister of Energy,Science and Technology (the "Minister") pursuantto the Electricity Act and to the OEB pursuant to the terms ofthe OEB Licence;

15.the IMO, its operation of the Financial Markets and the FinancialMarkets themselves shall not be subject to the regulatory oversightof any provincial securities commission or security regulatoryauthority;

16.section 32 of the Electricity Act permits the IMO to make rules".establishing and governing markets related to electricity.".As part of its efforts, the Market Design Committee prepared aset of "Market Rules for the Ontario Electricity Market" in early1999. Since that time, the IMO has been refining those rules.The approval process at the present time requires any new ruleor rule amendment to be approved by the Board of Directors ofthe IMO by a least a two-thirds majority and then submitted tothe Minister for final approval. The Market Rulesare publicly available and are accessible on the Internet andmay be downloaded from the IMO's web site at: www.theimo.com;

17.pursuant to subsection 32(6) of the Electricity Act, upon openingof the IMO-administered markets, the Minister will transfer formalrule making authority to the IMO, subject at all times to theappeal rights to the OEB, as set out in the Electricity Act. Inaddition, the IMO has the power to amend the Market Rules on anurgent basis pursuant to section 34 of the Electricity Act, subjectat all times to the appeal rights to the OEB, as set out in theElectricity Act;

18.all Contracts concluded within the Financial Markets will conformto the Market Rules, and all market participants will receivetransaction confirmations from the IMO in accordance with theprovisions thereof; and

19.the IMO has the mandate to administer, supervise and enforce allaspects of the IMO-administered markets and has put in place employeesand diagnostic software to fulfill this function.

ANDUPON the Commission being satisfied that to do so wouldnot be prejudicial to the public interest;

ITIS HEREBY ORDERED by the Commission that, pursuant tosection 147 of the Act, the IMO and all authorized market participantsin the Financial Markets are exempt from the requirements to fileforms and fees with the Commission pursuant to Section 7.5 ofCommission Rule 45-501, provided that:

(a)the IMO continues to operate pursuant to a valid licence issuedby the OEB; and

(b)that the Exchange Order remains in force and effect;

March28, 2002.

"PaulM. Moore"       "David A. Brown"