Securities Law & Instruments


Headnote

OSC Rule 91-507 – derivatives trade reporting obligations – filers seeking relief from derivatives data reporting obligations in respect of power market contracts entered into with U.S. power systems operators – relief granted from the requirement to report over-the-counter (OTC) derivative transactions in the primary electricity transmission rights market that are executed between the filers and the Independent System Operators and Regional Transmission Operators (ISO/RTOs) of which it is a market participant, subject to conditions.

DIRECTOR'S EXEMPTION

IN THE MATTER OF
BRUCE POWER L.P. AND BRUCE POWER INC.

DECISION
(Section 42 of Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting)

                WHEREAS Financial Transmission Rights, Transmission Congestion Contracts, Virtual Transactions, and Bookouts (each as defined below, each a “Financial Contract” and collectively, “Financial Contracts”) are derivatives (as such term is defined in Section 1 of the Ontario Securities Act (the “Act”)) and are therefore subject to reporting obligations under Ontario Securities Commission (the “OSC” or the “Commission”) Rule 91-507 Trade Repositories and Derivatives Data Reporting (OSC Rule 91-507);

                AND UPON the application of Bruce Power L.P (“BPLP”) and Bruce Power Inc. (“BP”, and together with BPLP, the “Applicants”) to the Director (as such term is defined in Section 1 of the Act) for an order pursuant to Section 42 of OSC Rule 91-507 exempting the Applicants’ transactions in Financial Contracts in the Financial Market (as defined below) from the reporting requirements under Part 3 of OSC Rule 91-507;

                AND UPON the Applicants having represented to the Director that:

Background:

1.             BP is a corporation incorporated under the Business Corporations Act (Ontario);

2.             BPLP is an all-Canadian limited partnership established under the Limited Partnerships Act (Ontario) and BPLP’s sole general partner is BP;

3.             the objects of BPLP include trading electricity in the United States, which involves trading in over-the-counter energy-related derivatives;

4.             the New York Independent System Operator, Inc. (“NYISO”), the PJM Interconnection, LLC (“PJM”) and the Midcontinent Independent System Operator, Inc. (“MISO”) are independent system operators and regional transmission operators (each individually, an “ISO/RTO” and collectively, the “ISO/RTOs”). The ISO/RTOs are authorized by the United States Federal Power Act (“FPA”) and the regulations made thereunder by the Federal Energy Regulatory Commission (“FERC”) to create and administer wholesale electricity markets in their respective jurisdictions within the United States;

5.             FERC Order No. 2000 empowers and requires the ISO/RTOs to implement comprehensive codified sets of rules, tariffs, rate schedules, protocols, processes and policies to govern the wholesale electricity markets in their respective jurisdictions (“Market Rules”);

6.             the wholesale electricity markets established, administered and operated by the ISO/RTOs in accordance with the FPA and the regulations thereunder, consist of both physical and financial markets;

7.             each ISO/RTO establishes, administers and operates a physical market which governs the real-time operation of power systems, allowing load and generation to be balanced, flows on the transmission systems to be within limits, and voltage and frequency to be maintained (each a “Physical Market”);

8.             in addition to the Physical Market, each ISO/RTO establishes, administers and operates a financial market for the trading of financial contracts linked to the Physical Market (each a “Financial Market”, together with the same ISO/RTO’s Physical Market, a “Market”);

9.             all persons participating in an ISO/RTO’s Market must be approved in advance by the ISO/RTO as authorized market participants in accordance with the applicable Market Rules and are required to meet financial thresholds that are at least equal to those to be applied under OSC Rule 45-501 dealing with “accredited investors” (“Authorized Market Participants”);

10.          BP is an Authorized Market Participant in each ISO/RTO’s Market;

11.          financial contracts traded in the Financial Markets may be linked to locational price differences across transmission paths and to price differences between the day-ahead energy market, which is the ISO/RTOs’ advanced scheduling and commitment of resources required to meet the next day’s level of physical electricity demand (the “Day-Ahead Energy Market”), and the real-time energy market, which is the ISO/RTOs’ scheduling and commitment of resources in the current day, for the same specified locations and time periods (the “Real-Time Energy Market”);

12.          a financial transmission right is a financial contract available to Authorized Market Participants in the Financial Markets administered by MISO and PJM to offset potential costs related to the congestion price risk of delivering energy to the grid when the grid is congested in the Day-Ahead Energy Market (“Financial Transmission Right”);

13.          payments under a Financial Transmission Right are based on the difference between the price of electricity determined on an ISO/RTO’s Physical Market at a specified injection point into the ISO/RTO’s energy grid and a specified point where the electricity is deemed to have been withdrawn from the ISO/RTO’s energy grid;

14.          under an obligation-type Financial Transmission Right, the holder may be entitled to receive a payment or obligated to make a payment whereas under an option-type Financial Transmission Right, the holder may be entitled to receive a payment but is under no obligation to make payments;

15.          a transmission congestion contract is a financial contract available to Authorized Market Participants in NYISO’s Markets to hedge price fluctuations of transmission congestion by providing the holder a right to collect, or an obligation to pay, congestion rents in the Day-Ahead Energy Market for energy associated with transmission between specified points of injection and withdrawal (“Transmission Congestion Contract”);

16.          a virtual transaction is a financial contract available to Authorized Market Participants of the ISO/RTOs for the purchase or sale of electricity in the Day-Ahead Energy Market that is not backed by physical assets such as load or generation resources at a specified location and where settlement occurs financially through an offsetting position which is automatically taken in the Real-Time Energy Market at the same specified location (a “Virtual Transaction”);

17.          a bookout is a contract available to Authorized Market Participants of  the ISO/RTOs for the purchase or sale of electricity in the Day-Ahead Energy Market with a feature that operates to offset the purchase or sale in the Day-Ahead Market prior to physical delivery or curtailment, with a transaction of equal and opposite volume for the same delivery period and location in the Real-Time Energy Market (a “Bookout”);

18.          the provisions of the Market Rules are complete codes, covering the form and content of all the transactions in a ISO/RTO’s Market, including the Financial Market;

19.          Financial Contracts are issued by the ISO/RTOs to Authorized Market Participants in the Financial Markets in accordance with the Market Rules (the “Primary Market”);

20.          the Market Rules may allow for the resale of Financial Contracts between Authorized Market Participants (the “Secondary Market”);

Regulatory Oversight

21.          the Applicants are not in default of securities legislation in any jurisdiction in Canada or the United States;

22.          BP operates pursuant to the license granted to it by the Ontario Energy Board (the “OEB”) under the Ontario Energy Board Act, 1998 (the “OEB Licence”);

23.          each ISO/RTO’s Market is subject to monitoring and oversight by FERC in accordance with the Market Rules, FERC Order No. 2000, FERC Order No. 719 and FERC Regulation 35.47;

24.          BP operates in each ISO/RTO’s Market pursuant to the market-based rate authority FERC Electric Tariff, Docket No. ER07-907-000, issued to it by FERC;

25.          FERC is the principal regulatory body under the FPA vested with the powers to oversee the ISO/RTOs, including the ISO/RTO-administered Financial Markets;

26.          FERC Order No. 719 requires: (i) each ISO/RTO to establish an internal market monitoring department (“MMU”) and to provide the MMU with full and free access to all market data collected by the ISO/RTO and (ii) the MMU to report directly to the ISO/RTO’s board of directors and to make a market surveillance report public at least quarterly;

27.          FERC conducts real-time monitoring of each of the ISO/RTOs’ Markets and analyses reports from each MMU;

28.          FERC has broad investigative powers into the conduct of the ISO/RTOs and the authority to impose penalties, order disgorgement of ill-gotten profits and to impose criminal liability for willful violations of the FPA;

29.          all transactions, including the Financial Contracts, concluded within the  Markets must conform to the applicable ISO/RTO’s Market Rules;

30.          the regulation of each Market by the ISO/RTOs and FERC is comprehensive and consistent with the purposes of the Act; and

31.          by Final Order 78 FR 19879 (2013), the United States Commodity Futures Trading Commission (the “CFTC”), in response to a petition from certain regional transmission equivalents and independent system operators, including the ISO/RTOs, exempted the Financial Contracts from the application of certain provisions of the United States Commodity Exchange Act, including the swap transaction reporting obligations therein (“CFTC Order”);

                AND UPON the Director being satisfied that exempting the Applicants from the reporting requirements under Part 3 of OSC Rule 91-507, in relation to Financial Contracts executed in the RTO/ISOs’ Financial Markets, would not be prejudicial to the public interest;

                IT IS THE DECISION of the Director that pursuant to section 42 of OSC Rule 91-507 that transactions in Financial Contracts executed by the BPLP or by BP, in its capacity as general partner of BPLP, with the ISO/RTOs in the Primary Market are exempt from the reporting requirements under Part 3 of OSC Rule 91-507;

                PROVIDED THAT:

a.             BP continues to operate pursuant to a valid OEB Licence;

b.             BP continues to operate pursuant to a valid FERC Electric Tariff;

c.             the Applicants remain in compliance with the Market Rules;

d.             transactions in the Financial Contracts continue to be excluded from CFTC swap data reporting requirements under the CFTC Order;

e.             each Financial Contract is linked to, and the aggregate volume of Financial Contracts for any period of time is limited by, the physical capability of the electricity transmission system operated by the ISO/RTO offering the Financial Contract, for such period;

f.              the Applicants promptly comply with requests from the Commission, on an as-needed basis, to share (i) positional data, (ii) transactional data, (iii) valuation data and (iv) clearing account data, within the Applicants’ possession in respect of the Financial Contracts, including any information or documentation concerning such data, in a form acceptable to the Commission; and

g.             the Applicants shall not disclose to any person or company any request by the Commission for data, information, or documentation and shall maintain the confidentiality of the request and any response to it. Where disclosure may be required by law, the Applicants will, to the extent permitted by law, inform the Commission of the disclosure requirement.

DATED November 11, 2016

“Kevin Fine”
Director, Derivatives
Ontario Securities Commission