Securities Law & Instruments


Headnote

OSC Rule 91-507 -- derivatives trade reporting obligations -- filer seeking relief from derivatives data reporting obligations in respect of certain derivatives contracts traded in wholesale electricity markets in the United States -- relief granted from the requirement to report transactions that are executed by the filer on primary transmission rights market in the United States, subject to conditions.

Applicable Legislative Provisions

Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting, s. 42.

March 29, 2018

IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BROOKFIELD ENERGY MARKETING LP (the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision in Québec pursuant to section 86 of the Derivatives Act (Québec), CQLR, c. I-14.01 and in Ontario pursuant to section 42 of the Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting, seeking relief from the reporting requirements set forth in Chapter 3 of the Autorité des marchés financiers' Regulation 91-507 Trade Repositories and Derivatives Data Reporting, CQRL, c. I-14.01, r. 1.1 and in Part 3 of Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting (collectively, the Reporting Rules), in connection with the Filer's activities relating to the following financial contracts: Financial Transmission Rights, Transmission Congestion Rights and Energy Transactions on the wholesale electricity markets established, administered and operated by the Operators (as defined below) (each financial contract as defined below and collectively the Covered Transactions) (the Exemptive Relief Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):

(a) the Autorité des marchés financiers is the principal regulator for this application, and

(b) the decision is the decision of the principal regulator and evidences the decision of the other Decision Maker.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions, CQRL, c. V-1.1, r. 3 and the Reporting Rules have the same meaning if used in this decision, unless otherwise defined.

(a) BAM refers to Brookfield Asset Management Inc.;

(b) Bookout refers to the definition set forth in representation no. 21 below;

(c) CAISO refers to California Independent System Operator;

(d) CEA refers to the United States Commodity Exchange Act;

(e) CFTC refers to the United States Commodities Futures Trading Commission;

(f) CFTC Order refers to CFTC Order 78 FR 19879 (2013), as amended, exempting the Covered Transactions from the application of certain provisions of the CEA, including the reporting requirements;

(g) Energy Transactions refers to the definition set forth in representation no. 21 below;

(h) FPA refers to the United States Federal Power Act.

(i) FERC refers to the United States Federal Energy Regulatory Commission;

(j) Financial Transmission Rights as defined in representation no. 16 below;

(k) ISO-NE refers to ISO New England, Inc.;

(l) MISO refers to the Midcontinent Independent System Operator, Inc.

(m) NYISO refers to the New York Independent System Operator, Inc.;

(n) Operator(s) refers individually or collectively to the following independent system operators and regional transmission operators authorized by the FPA to create and administer wholesale electricity markets in their respective jurisdictions within the United States: CAISO, ISO-NE, MISO, NYISO, PJM and SPP;

(o) PJM refers to PJM Interconnection, L.L.C;

(p) SPP refers to Southwest Power Pool, Inc.;

(q) SPP CFTC Order refers to the CFTC Order 81 FR 73062 dated October 18, 2016 exempting the Covered Transactions from the application of certain provisions of the CEA, including the reporting requirements;

(r) Transmission Congestion Rights refers to the definition set forth in representation no. 19 below; and

(s) Virtual Transaction refers to the definition set forth in representation no. 20 below.

Representations

This decision is based on the following facts represented by the Filer:

1. the Filer is a limited partnership established under the Limited Partnerships Act (Ontario) and Brookfield Energy Marketing Inc. acts as the Filer's general partner;

2. the Filer's head office is located at 41 rue Victoria, Gatineau, Québec J8X 2A1, Canada;

3. the Filer is an indirect wholly owned subsidiary of BAM and is responsible for managing the output from the North American renewable energy facilities owned by BAM's affiliate, Brookfield Renewable Energy Partners L.P., and the various funds controlled by BAM;

4. the Filer provides BAM the necessary schedule, settling and billing functions required to participate in wholesale power markets of the Operators including trading in over-the-counter energy-related derivatives. More specifically, the Filer conducts electricity trading activities in the United States which involves trading in over-the-counter energy-related derivatives;

5. amongst its activities, the Filer executes Covered Transactions as part of its day-to-day activities in the wholesale power markets in order to complement and support related physical energy positions;

6. the Filer acts as counterparty to the Covered Transactions;

7. the Operators are authorized by the FPA and the regulations made thereunder by the FERC to create and administer wholesale electricity markets in their respective jurisdictions with the United States;

8. all trading activities in respect of the Covered Transactions are regulated by and subject to the oversight of the FERC, which regulates the markets for Covered Transactions and imposes requirements on the Operators as well as the entities that Operators trade with, relating to creditworthiness, risk management, and reporting, among others;

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

10. the wholesale electricity markets established, administered and operated by the Operators consist of both physical and financial markets;

11. each Operator 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);

12. in addition to the Physical Market, each Operator 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 Physical Market, a Market);

13. all persons participating in an Operator's Market must be approved in advance by the Operator as authorized participant in accordance with the applicable Market Rules and are required to meet certain financial thresholds (an Authorized Participant);

14. the Filer is an Authorized Participant in each Market operated by the Operators;

15. 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 market, which is the Operator's advanced scheduling and commitment of resources required to meet the next day's level of physical electricity demand (the Day-Ahead Market), and the real-time market, which is the Operators' scheduling and commitment of resources in the current day, for the same specified locations and time periods (the Real-Time Market);

16. a Financial Transmission Right is a financial contract available to Authorized Participants in the Financial Markets administered by CAISO, ISO-NE, NYISO, 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;

17. payments under Financial Transmission Rights are based on the difference between the price of electricity determined on the Operator's Physical Market at a specified injection point into the Operator's energy grid and at a specified point where the electricity is deemed to have been withdrawn from the Operator's energy grid;

18. 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;

19. a Transmission Congestion Right is a financial contract available to Authorized Participants in the Financial Market administered by SPP 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 Market for energy associated with transmission between specified points of injection and withdrawal;

20. a virtual transaction is a financial contract available to Authorized Participants for the purchase or sale of electricity in the Day-Ahead 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 Market at the same specified location (a Virtual Transaction);

21. a bookout is a contract available to Authorized Participants for the purchase or sale of electricity in the Day-Ahead 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 Market (a Bookout and collectively with Virtual Transaction, Energy Transactions);

22. the provisions of the Market Rules are complete codes, covering the form and content of all the transactions in an Operator's Market, including the Financial Market;

23. Covered Transactions are issued by the Operators to Authorized Participants in the Financial Markets in accordance with the Market Rules (the Primary Market);

24. the Market Rules may allow for the resale of Covered Transactions between Authorized Participants;

25. the Filer is not in default of the securities legislation in any jurisdiction;

26. the Filer operates pursuant to a license granted by the Ontario Energy Board under the Energy Board Act (Ontario) with licence number EW2010-0179;

27. each Operator's Market is subject to monitoring and oversight by the FERC in accordance with Market Rules, FERC Order No. 2000, FERC Order No. 719 and FERC Regulation 35.47;

28. the Filer operates in each Operator's Market pursuant to the market-based rate authority FERC Electric Tariff, Docket No. ER10-1427, dated August 1, 2010, issued to it by the FERC;

29. the FERC is the principal regulatory body under the FPA vested with the powers to oversee the Operators, including the Operators-administered Financial Markets;

30. FERC Order No. 719 requires: (i) each Operator 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 Operator, and (ii) the MMU to report directly to the Operator's board of directors and to make a market surveillance report public at least quarterly;

31. the FERC conducts real-time monitoring of each of the Operators' markets and analyses reports from each MMU;

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

33. Covered Transactions conform to all applicable Operators' Market Rules;

34. the CFTC issued the CFTC Order and the SPP CFTC Order exempting certain over-the-counter energy related derivatives (including the Covered Transactions) from certain provisions of the CEA and the CFTC's regulations, including the reporting obligations.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the securities legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the securities legislation is that the Exemptive Relief Sought is granted provided that:

1. the Filer continues to be a limited partnership organized under the laws of Ontario with its head office in Québec;

2. the Filer continues to operate pursuant to a valid OEB Licence;

3. the Filer continues to operate pursuant to a valid FERC Electric Tariff;

4. the Filer remains in compliance with the Market Rules;

5. Operators continue to operate under monitoring and oversight of the FERC;

6. each Covered Transaction conforms with the applicable Market Rules, is executed on the Primary Market and is linked to, and the aggregate volume of Covered Transactions for any period of time is limited by, the physical capability of the electricity transmission system operated by the Operator offering the Covered Transaction for such period;

7. the Filer promptly complies with requests from the Decision Makers, on an as-needed basis, to share (i) positional data, (ii) transactional data, (iii) valuation data and (iv) clearing account data, within the Filer's possession in respect of the Covered Transactions, including any information or documentation concerning such data, in a form acceptable to the Decision Makers.

"Lise Estelle Brault"
Directrice principale de l'encadrement des dérivés
Autorité des marchés financiers