NaturEner Energy Canada Inc.

Decision 2009-174 Review and Variance of Alberta Utilities Commission Decision 2009-042 (October 22, 2009)

ALBERTA UTILITIES COMMISSION Decision 2009-174, Review and Variance of Alberta Utilities Commission Decision 2009-042 Application No. 1605152 October 22, 2009 Published by Alberta Utilities Commission Fifth Avenue Place, 4th Floor, 425-1 Street SW Calgary, Alberta T2P 3L8 Telephone: (403) 592-8845 Fax: (403) 592-4406 Web site: www.auc.ab.ca

Contents 1 INTRODUCTION AND BACKGROUND... 1 2 VIEWS OF PARTIES REGARDING REVIEW REQUEST... 2 2.1 NaturEner s Request for Review and Remedy Sought... 2 2.2 NaturEner s Grounds for Review and Variance... 2 2.3 AESO... 3 2.4 TransAlta Corporation... 4 2.5 Reply Submission of NaturEner... 4 3 TEST FOR REVIEW AND VARIANCE APPLICATIONS... 5 4 COMMISSION FINDINGS... 6 4.1 Ground I: TCM Rule Should Specifically Include Planning... 6 4.2 Grounds II & III: Curtailment of New Generators and Assignment of RAS Based on New Entrant Status... 7 4.3 Ground IV: Exception and Specified Time Period... 9 4.4 Conclusion of Commission Findings... 13 APPENDIX 1 APPLICATION PARTICIPANTS... 15 AUC Decision 2009-174 (October 22, 2009) i

ALBERTA UTILITIES COMMISSION Calgary Alberta NATURENER ENERGY CANADA INC. Decision 2009-174 REVIEW AND VARIANCE OF Application No. 1605152 ALBERTA UTILITIES COMMISSION DECISION 2009-042 1 INTRODUCTION AND BACKGROUND 1. (NaturEner) requested a review and variance of Alberta Utilities Commission (Commission) Decision 2009-042 (Decision), 1 which was released on April 9, 2009. In the Decision, the Commission laid out its findings on various objections to the Alberta Electric System Operator s (AESO) 2 Rule 9.4 on Transmission Constraints Management (TCM Rule). 2. For the reasons outlined below, the Commission denies NaturEner s request. 3. In the Decision, the Commission directed the AESO to revise the TCM Rule and included several directions to the AESO to clarify, describe, or in some cases define concepts and terms within the TCM Rule. 3 4. The AESO s revised TCM rule has yet to be filed with the Commission. 5. On June 8, 2009, the Commission received a request for review and variance of the Decision from NaturEner. NaturEner took issue with two specific directions of the Decision and with a finding of the Commission in the Decision. 6. Specifically, NaturEner objected to directions (c) and (d), in which the Commission directed the AESO to, inter alia: (c) Clarify the scope of the rule. The AESO can choose the scope that it wishes to apply to the TCM Rule, but once it does, the scope should be clear. The TCM Rule should either be limited to real time congestion or be expanded to include the planning stage elements related to congestion; (d) If the scope of the TCM Rule is expanded to include the planning stage, provide a description in the TCM Rule of how RAS [Remedial Action Scheme] will be administered; 4 7. NaturEner also objected to the findings of the Commission in paragraph 158 of the Decision respecting planning and remedial action schemes (RAS or RAS schemes): 1 Alberta Utilities Commission, Decision 2009-042: Alberta Electric System Operator, Objections to ISO Rule 9.4 Transmission Constraint Management (Released: April 9, 2009). 2 The Independent System Operator (ISO) is established as a corporation under subsection 7(1) of the Electric Utilities Act and operates under the trade name AESO. 3 Decision 2009-042 at paragraph 205. 4 Ibid. AUC Decision 2009-174 (October 22, 2009) 1

158. The Commission is not persuaded by NaturEner s submission that curtailing new entrants is discriminatory. The AESO stated that new entrants are subject to the results of system impact studies during the planning stage which may indicate the need for some mechanism, such as RAS, to ensure the safety and reliability of the AIES [Alberta Interconnected Electric System]. 142 The Commission has determined that there are no explicit or implicit transmission rights but that the obligation imposed on the AESO is to provide market participants with a reasonable opportunity to access the AIES. There is nothing inconsistent with the requirement of a RAS scheme and the provision of a reasonable opportunity to access the AIES where there may be insufficient transmission available. 142 Tr. Vol. 3, pp. 363-364. 8. On June 11, 2009, the Commission issued a letter to interested parties to the proceeding that resulted in the Decision (Proceeding ID. 41) asking for any comments to NaturEner s review and variance request to be filed with the Commission by July 7, 2009, with reply from NaturEner, if any, due by July 27, 2009. 2 VIEWS OF PARTIES REGARDING REVIEW REQUEST 2.1 NaturEner s Request for Review and Remedy Sought 9. Relying on section 10 of the Alberta Utilities Commission Act, S.A. 2007, c.a-37.2 and Commission Rule 016 Review and Variance of Commission Decisions (Commission Rule 016), NaturEner argued that the Commission should revise its directions to the AESO to state that: i. the TCM Rule should include the planning stage elements related to congestion; 5 ii. iii. under a RAS scheme, a new generator should not have the sole burden of relieving congestion resulting from insufficient transmission; 6 and a RAS scheme under which a new generator is required to solely relieve a congestion condition because of insufficient transmission, should be approved by the Commission and specify the period of time it applies. 7 2.2 NaturEner s Grounds for Review and Variance 10. In making its review and variance request, NaturEner raised four grounds and contended that these grounds represented errors of law and/or fact such that a review of the Decision was required. NaturEner submitted that the Commission committed an error of law and/or fact by: I. Holding that the TCM Rule does not specifically need to include elements related to the planning stage of congestion management (TCM Rule Should Specifically Include Planning); 5 NaturEner Review and Variance Application at page 3. 6 NaturEner Review and Variance Application at page 3-5. 7 NaturEner Review and Variance Application at page 5. 2 AUC Decision 2009-174 (October 22, 2009)

II. III. IV. Finding in paragraph 158 of the Decision as a fact that NaturEner s submission was that curtailing new entrants is discriminatory (Curtailment of New Generators); Not finding that allowing assignment of RAS based on new entrant status is discriminatory (Assignment of RAS Based On New Entrant Status); and Not holding that a discriminatory RAS scheme requires approval by the Commission and specification of the period of time it applies (Exception and Specified Time Period). 8 2.3 AESO 11. In its July 7, 2009 response, the AESO supported the Decision and submitted that NaturEner failed to demonstrate that any of the grounds raised by NaturEner raised any doubt, let alone substantial doubt, as to the correctness of the Decision. 12. With respect to the four grounds raised by NaturEner, the AESO argued: (I) TCM Rule Should Specifically Include Planning Section 17 of the Transmission Regulation 9 permits the AESO to create more than one rule to manage congestion and there is no statutory requirement to include planning in the TCM Rule. The discretion to do so resides with the AESO. 10 (II) Curtailment of New Generators The Commission did not make a fact finding that curtailing new entrants was discriminatory. The Commission characterized NaturEner s comments as opinion as evidenced by the use of the word submission in paragraph 158 of the Decision. If this had been accepted as fact, the Commission would have made such a ruling and a different decision would have resulted. Moreover, read in its entirety, it is clear from the decision that the Commission fully understood NaturEner s complaint concerned the discrimination of new entrants and as such, the Commission, in making its finding that there was no discrimination did not fail to consider the submission that simply by virtue of the fact that they were a new entrant that there was de facto, discrimination. 11 (III) Assignment of RAS Based On New Entrant Status The Commission s findings respecting the applicability of RAS was made in the context of transmission rights and the fact that an entrant only has reasonable opportunity and not a right to access the AIES. The finding was not based on a finding that the assignment of RAS based on new entrant status was discriminatory. Moreover, this ground is the same as the first ground as it 8 NaturEner Review and Variance Application at pages 1 and 2. 9 Transmission Regulation (AR 86/2007). 10 AESO Response at page 2. 11 AESO Response at page 3. AUC Decision 2009-174 (October 22, 2009) 3

seeks to compel the AESO to include planning within the scope of its TCM Rule. 12 (IV) Exception and Specified Time Period In order to succeed on this ground, the Commission must have concluded that a RAS scheme assigned to a new generator is discriminatory, not fair and not openly competitive. Such a finding is necessary for NaturEner to take a position that the exception under subsection 15(2) of the Transmission Regulation applies. As the Commission did not make such a finding, however, this ground falls short. 13 2.4 TransAlta Corporation 13. In its July 7, 2009 response, TransAlta Corporation (TransAlta) considered that the issues raised by NaturEner required clarification, but recommended that, given the AESO s stakeholder consultation for the development of a new constraints management rule for dealing with real time constraints and the AESO s intention to conduct stakeholder consultation to develop rules related to managing constraints in the planning context, the review and variance application be adjourned for 6 months pending the AESO stakeholder consultation. 14 2.5 Reply Submission of NaturEner 14. In its reply, NaturEner agreed with the AESO that it must raise a substantial doubt as to the correctness of the Commission s decision but argued that it had met that onus. 15. In reply to the AESO s response on the ground raised, NaturEner argued: (I) TCM Rule Should Specifically Include Planning NaturEner conceded that the AESO may be able to choose the scope it wished but argued that the AESO still had to make a rule to deal with all manners of constraint. NaturEner further acknowledged and agreed with the AESO s proposed consultation process as outlined in the AESO s July 21, 2009 consultation letter. 15 (II) Curtailment of New Generators NaturEner clarified its ground in this regard by stating that its objection to the Decision was on the basis that it considered the Commission to have made a finding that rejected NaturEner s position that solely curtailing new entrants, rather than all generators, was discriminatory and was contrary to the legislative scheme. NaturEner could accept that if all generators were curtailed, that that practice would not necessarily be discriminatory. 16 (III) Assignment of RAS Based On New Entrant Status 12 AESO Response at page 3. 13 AESO Response at page 4. 14 TransAlta Response at page 1. 15 NaturEner Reply at page 2. 16 NaturEner Reply at page 3. 4 AUC Decision 2009-174 (October 22, 2009)

NaturEner conceded that there may be no right to access to the AIES but argued that a reasonable opportunity should equate with an equal opportunity for all generators. 17 (IV) Exception and Specified Time Period NaturEner maintained that a planned RAS scheme that does not allow that 100% of the time all anticipated in merit electric energy is an exception to subsection 15(1)(e)(i) of the Transmission Regulation and as such, requires Commission approval under subsection 15(2) of the Transmission Regulation. 18 16. NaturEner argued that it would be fair, efficient and openly competitive to solely curtail the oldest generator to allow all newer generators unconstrained access, and that if the practice of curtailing on that basis raises a substantial doubt as to the correctness of the Commission s decision, then NaturEner had met the test for a review. 19 17. In reply to TransAlta s submission, NaturEner maintained that its review and variance application should not be adjourned, because it was concerned that the AESO stakeholder consultation would be influenced and/or limited by the Decision. 20 3 TEST FOR REVIEW AND VARIANCE APPLICATIONS 18. The Commission may review its decisions pursuant to section 10 of the Alberta Utilities Commission Act and in accordance with Commission Rule 016, which establishes the procedures and tests to be applied to an application for a review of a decision of the Commission. In particular, section 11 of Commission Rule 016 provides that the Commission will determine the preliminary question of whether a decision should be reviewed and that, where a party has alleged an error of law, jurisdiction or fact, the Commission, in addressing the preliminary question, will consider if the applicant has raised a substantial doubt as to the correctness of the decision. 21 19. If the Commission finds that this test has been met and grants the application for review, the Commission will issue a notice of review and hold a new hearing or other proceeding in accordance with the Commission s Rules of Practice. 22 20. Both NaturEner and AESO agree that NaturEner must satisfy the Commission that there is a substantial doubt as to the correctness of the Commission s decision not to direct the AESO to include planning, and in particular the application of RAS, in its new rule respecting congestion management. 17 NaturEner Reply at page 4. 18 NaturEner Reply at page 4. 19 NaturEner Reply at page 5. 20 NaturEner Reply at page 4. 21 Commission Rule 016, Review and Variance of Commission Decisions, section 12(1)(i). 22 Commission Rule 016, Review and Variance of Commission Decisions, section 13. AUC Decision 2009-174 (October 22, 2009) 5

4 COMMISSION FINDINGS 4.1 Ground I: TCM Rule Should Specifically Include Planning 21. In its review and variance request, NaturEner argued that the AESO should not have discretion to exclude planning stage congestion management from the TCM Rule. 23 In its reply submission, however, NaturEner conceded that the AESO did not have to do so within the context of the TCM Rule that was before the Commission. NaturEner stated at page 2 of its reply submission: The AESO may be able to choose the scope that it wishes to apply to the TCM Rule, however that does not negate the AESO s obligation to make a rule and or establish a practice for all manners of constraint management the AESO employs. 22. Instead, NaturEner s primary concern was aimed at the AESO s delay in establishing a rule or practice addressing planning elements. Further, NaturEner advised that it agreed with and appreciated the direction that the AESO was taking regarding the AESO s current consultation to clarifying[sic] the interplay between using operator vs. RAS constraint management. 24 23. In the Decision, the Commission found that section 17 of the Transmission Regulation permits the AESO to create more than one rule or practice to address the issue of congestion management. Therefore [ ] the TCM Rule does not need to address all forms of congestion. 25 24. Section 17 of the Transmission Regulation states: Managing transmission constraints 17 The ISO must make rules and establish practices respecting the operation of the transmission system and the management of transmission constraints that may occur from time to time. 25. The provision uses the terms rules and practices. The Commission concluded that it was contemplated that more than one rule or practice would be developed to respond to transmission constraint issues. While NaturEner may prefer one rule addressing both the planning and the real-time elements of congestion management, the AESO is not legislatively required to do so. 26. NaturEner has also not provided any persuasive argument raising a substantial doubt that the Commission s determination respecting the AESO s latitude to develop the TCM Rule s scope was in error. Further, it appears from NaturEner s reply submissions that NaturEner acknowledges this latitude. 27. The Commission, therefore, finds that NaturEner has failed to satisfy this ground for a review and variance of the Decision. 28. The remaining grounds all address specific elements of planning as it pertains to the development of a congestion management rule. As NaturEner has not demonstrated a substantial doubt respecting the Commission s finding that the AESO has the latitude to develop the scope of its TCM Rule, and as the AESO has not included planning elements in its TCM Rule, the 23 NaturEner Review and Variance Application at page 2. 24 NaturEner Reply at page 2. 25 Decision 2009-042 at paragraph 74. 6 AUC Decision 2009-174 (October 22, 2009)

remaining grounds proposed of review and variance are academic. Nonetheless, the Commission will address these remaining grounds in the sections that follow. 4.2 Grounds II & III: Curtailment of New Generators and Assignment of RAS Based on New Entrant Status 29. The second and third grounds raised by NaturEner are similar and therefore have been addressed together. 30. In section 4.2.3 of the Decision, the Commission addressed whether the TCM Rule offended fair, efficient and openly competitive (FEOC) principles, because it did not recognize the rights of generators to access the AIES. The market participants who were opposed to the TCM Rule, whether they were new or incumbent generators, advanced the argument that they had a right to access the AIES, and hence the TCM Rule should recognize this. NaturEner, as a new generator, took the position that its right to access the AIES should not be secondary to that of an incumbent generator. 31. In the Decision, and contrary to NaturEner s assertions, the Commission was well aware of NaturEner s position that it believed itself to be discriminated against, because of its status as a new generator. For example, consider paragraph 144 of the Decision, where the Commission observed: 144. NaturEner submitted that the TCM Rule offends FEOC market principles because the practice of curtailing new entrants before existing users of the transmission system through mechanisms such as RAS is discriminatory and creates preferential transmissions rights. 32. The Commission was also aware that incumbent generators, such as ATCO Power Ltd., were advancing their position as existing generators so that a new generator did not have the right to access that interconnection to the harm and detriment of an existing user. 26 33. In response, the Commission first determined that no right to access transmission was created by legislation as alleged by NaturEner and other parties in Proceeding ID. 41. The Commission reviewed subsection 17(b) and section 29 of the Electric Utilities Act and sections 28, 29 and 30 of the Transmission Regulation, all of which reference access to the AIES and determined that no such right exists. The Commission found at paragraph 154 of the decision the following: 154. Access to the AIES, for generators, is a reasonable opportunity, and not a right. 34. The reference to a reasonable opportunity can be found in subsection 17(b) and section 29 of the Electric Utilities Act which state: 17 The Independent System Operator has the following duties: (b) to facilitate the operation of markets for electric energy in a manner that is fair and open and that gives all market participants wishing to participate in those markets and to exchange electric energy a reasonable opportunity to do so; 26 Decision 2009-042 at paragraph 146. AUC Decision 2009-174 (October 22, 2009) 7

Providing system access service 29 The Independent System Operator must provide system access service on the transmission system in a manner that gives all market participants wishing to exchange electric energy and ancillary services a reasonable opportunity to do so. 35. In its reply comments, NaturEner conceded that it has no right to access the AIES but continues to take the position that reasonable access must mean an equal opportunity amongst all generators. 27 The Commission did and does not agree with this interpretation. 36. With respect to the issue of access to the AIES in the absence of a right, in the Decision, the Commission stated: 153. The Commission considers that sections 28 and 29 of the Transmission Regulation address generators local interconnection costs and generating unit contributions and related refunds. These provisions do not suggest that incumbent generators have any preferential opportunities to access the AIES. Further, these provisions do not suggest that a new entrant would acquire any greater opportunity than an incumbent. [ ] 158. The Commission is not persuaded by NaturEner s submission that curtailing new entrants is discriminatory. The AESO stated that new entrants are subject to the results of system impact studies during the planning stage which may indicate the need for some mechanism, such as RAS, to ensure the safety and reliability of the AIES. The Commission has determined that there are not explicit or implicit transmission rights but that the obligation imposed on the AESO is to provide market participants with a reasonable opportunity to access the AIES. There is nothing inconsistent with the requirement of a RAS scheme and the provision of a reasonable opportunity to access the AIES where there may be insufficient transmission available. 37. NaturEner has not advanced any argument that provides substantial doubt as to the correctness of the Commission s findings. The language found in the legislative provisions reviewed by the Commission supports the Commission s finding that there is no explicit legislative provision found in the Electric Utilities Act or the Transmission Regulation that references a generator s right to access the AIES. 28 The Commission heard evidence that the AESO provided reasonable access to new entrants by performing system impact studies during the planning stage, which may indicate the need for some mechanisms, such as RAS, to ensure the safety and reliability of the AIES. 29 A RAS scheme solely assigned to a new entrant is not discriminatory simply because the new entrant is the only recipient of the RAS scheme. By imposing the RAS scheme, the new entrant is able to access the AIES in advance of sufficient transmission being constructed. The Commission found that this practice did not offend the legislative scheme. 38. In sum, NaturEner has not raised a substantial doubt that an interpretation of the language found in subsection 17 (b) and section 29 of the Electric Utilities Act to provide all market participants wishing to exchange electric energy and ancillary services with reasonable 27 NaturEner Reply at paragraph 11. 28 Decision 2009-042 at para. 150. 29 Tr. Vol. 3, pp. 363-364. 8 AUC Decision 2009-174 (October 22, 2009)

opportunity to do so means that all market participants should have an equal opportunity to do so. The plain meaning of the words used in the legislation does not support this interpretation. 39. For these reasons, the Commission finds that NaturEner has failed to satisfy these grounds for a review and variance of Decision 2009-042. 4.3 Ground IV: Exception and Specified Time Period 40. Finally, NaturEner objected to the RAS scheme proposed to be implemented by the AESO. NaturEner claims that the scheme does not allow that 100% of the time all anticipated in merit electric energy of a generator can occur when all transmission facilities are in service. 30 This, NaturEner argues, is an exception to subsection 15(1)(e)(i) of the Transmission Regulation and requires the Commission s approval and specification of the time period of the exception under subsection 15(2) of the Transmission Regulation. 31 41. In its submission, the AESO submitted that it would not comment on the curious assertion by NaturEner that a RAS scheme that is discriminatory can be approved by the Commission. 32 In addition, the AESO submitted that in order for a review to proceed on this ground, the Commission must have concluded in the Decision that a RAS scheme assigned to a new generator is discriminatory, not fair, and not openly competitive. 33 42. Subsections 15(1)(e), (f) and 15(2) of the Transmission Regulation state: 15(1) In making rules under section 20 of the Act, and in exercising its duties under section 17 of the Act, the ISO must [ ] (e) taking into consideration the characteristics and expected availability of generating units, plan a transmission system that (i) is sufficiently robust so that 100% of the time, transmission of all anticipated in-merit electric energy referred to in section 17(c) of the Act can occur when all transmission facilities are in service. (ii) is adequate so that, on an annual basis, and at least 95% of the time, transmission of all anticipated in-merit electric energy referred to in section 17(c) of the Act can occur when operating under abnormal operating conditions, (f) make arrangements for the expansion or enhancement of the transmission system so that, under normal operating conditions, all anticipated in-merit electricity referred to in clause e(i) and (ii) can be dispatched without constraint [ ] 15(2) In planning and arranging for enhancements or upgrades to the transmission system, the ISO may make or provide for specific and limited exceptions to the matters 30 Decision 2009-042 at page 5. 31 Decision 2009-042 at page 5. 32 AESO Response at page 4. 33 AESO Response at page 4. AUC Decision 2009-174 (October 22, 2009) 9

described in subsection (1)(e) and (f) and in section 16(1), or any of them, and if it does so, must (a) file the exceptions with the Commission for approval, and (b) specify the periods of time the exceptions apply. (emphasis added) 43. NaturEner has suggested that a RAS scheme, by its very nature is a scheme that the AESO uses as a temporary measure until the AESO can plan enhancements or upgrades to the transmission system. Therefore, in order to implement a RAS scheme, the AESO must seek Commission approval and must specify the period of time in which the exceptions apply. 44. Apart from the provisions referenced by NaturEner, the AESO also has the ability to impose a non-wires solution in certain circumstances pursuant to subsection 15(3) of the Transmission Regulation. Subsection 15(3) states: (3) In considering the design and planning of the transmission system, the ISO may make or provide for specific and limited exceptions to the requirements of subsection (1) and propose a non-wires solution (a) in areas where there is limited potential for growth of load, and the cost of the non-wires solution is materially less than the life-cycle cost of the transmission wires solution, compared over an equivalent study period, or (b) if the non-wires solution is required to ensure reliable service due to the shorter lead time of the non-wires solution, for a specified limited period of time. 45. The evidence in this proceeding as it related to section 15 of the Transmission Regulation was tendered by ENMAX Energy Corporation (ENMAX), who filed in support of the TCM Rule and by TransAlta, who did not support the TCM Rule. 46. ENMAX s witness stated the following at Transcript Vol. 4, page 681: Q. And you are aware that section 15.1 (e)(i) of the T-reg provides that the transmission system must be adequate so that transmission of 100 percent of all anticipated in-merit energy can occur under normal operating conditions? A. Yes. Q. So essentially absent some type of contingency, transmission of all anticipated inmerit energy is supposed to occur based on the regulation. That would be fair? A. This is an area where I think there's some interpretation available in the regulation because the regulation also allows the AESO to use, for example, TMR contracts to manage congestion on particular areas of the transmission system. And so in that context there are situations where -- I guess a deviation from that particular aspect of the policy is possible even under the policy itself. Q. Would you agree that the starting point is that, as I phrased it, that absent a contingency all anticipated in-merit energy is supposed to occur? That would be the starting point? A. I think that's fair. It says that in the regulation. I think from an engineering perspective there are some difficulties with that, not the least of which is that sometimes the physics of power systems preclude you from dispatching all in-merit energy. And I guess part of the difficulty that we all face, that -- for example, we're attempting to 10 AUC Decision 2009-174 (October 22, 2009)

establish a single price in some sense that doesn't reflect congestion; but the fact is that the physical reality of a power system is that congestion does exist. So I guess I would liken it in some sense to the fact that this Commission in the past, even in regulated days, we have to deal with issues where fairness and efficiency may be conflicting objectives and so some judgment is required on what weight you put on fairness and what weight you put on efficiency. I think that's really part of the problem in the discussions that we're having, is that some of us may put more weight on fairness and some of it on efficiency. And it's a very difficult problem at times. So on the one hand, you know, the regulation says that we should have a single price; but of course a single price cannot reflect the fact that it costs you something to go from one place to another with electricity via the cost of transmission. So if you take a look at the regulatory construct as a whole, it cannot be internally consistent. And I don't mean that in any way as a criticism. I go back to what I said a minute ago, sometimes there are trade-offs between fairness and efficiency, and those trade-offs have to be made, for example, by the judgment of this Commission. Q. You've gone quite a bit beyond what I was asking, so if I can take you back to where my questioning was, and that was relating to absent a contingency. And you stated that there may be some physics, engineering reasons why all in-merit energy can't be transmitted. But I guess if I take you back to what I was referring to, in the absence of a contingency or some type of restriction like that, the starting premise is that the transmission system should be built so that all anticipated in-merit energy can be transmitted, correct? A. I apologize if I didn't get to the response last time. I will say yes, that I agree with that, that unconstrained transmission is the starting premise, subject to the point I made, that in certain circumstances the AESO has and does have the ability to use TMR. 34 47. TransAlta provided similar testimony respecting the AESO s use of a non-wires solution. It stated at Transcript Vol. 2, page 293: A. MR. KOCH: So I think certainly in the longer term, the ISO's 10-and 20-year plans we have not objected to. And so from a long-term planning perspective, I guess I would agree that they were prosecuting their duties or fulfilling their duties. However, in the short term I think my answer would probably be no. You know, we've seen significant curtailments at our Summerview facility. There are wires and nonwires solutions that the ISO can, under the transmission regulation, pursue. We haven't seen them pursue those, those nonwire solutions, and pass the costs through to transmission customers. We've seen RAS schemes that were activated for another reason being used for managing transmission congestion. You know, I think that it's fine in an interim basis under section 15.3 (b) of the transmission regulation to on a temporary basis use nonwire solutions, but we think that they have a responsibility and an obligation to fulfill their duties to put wire solutions in place. 35 48. NaturEner s submissions presuppose that the TCM Rule should include RAS, and therefore direction from the Commission is warranted. This presumption was rejected by the Commission in the Decision. During the course of Proceeding ID. 41, the Commission ruled: CHAIR: The subject matter of this proceeding, having heard all the parties this morning, is with regard to the entirety of the proposed ISO rule 9.4 and not only some portions of the rule. The AESO has advised that the scope of the rule is related to the management 34 Proceeding ID 41, Transcript Vol. 4, page 681. 35 Proceeding ID 41, Transcript Vol. 2, page 293 AUC Decision 2009-174 (October 22, 2009) 11

of congestion in realtime, and it's on that basis that the objections to the rule must be considered. However, the other parties have indicated that there are portions of the rule and they've pointed them out, in particular 9.4.3, that these portions do not exactly address realtime congestion. On the face of the rule as filed, along with the submissions that we've heard this morning, the issue of relevance has not been clearly enough established at this stage in our view to justify dismissal of the NaturEner objections and submission in their entirety. We understand that parties are objecting to the rule on the basis that it should include RAS and not just NaturEner, but other parties are alluding to RAS as well, that it should be dealt with within the framework of this rule or should be considered in the development of this rule on congestion. As stated in the provisions of the Electric Utilities Act, we must make a determination as to whether the rule is technically deficient and parties have indicated this morning that they may be arguing that the rule is technically deficient because RAS is not adequately addressed. But we would only make that determination after we've heard the submissions of the parties. However, we do not consider that the scope of the proceeding should include specific mechanisms as to how RAS may work, how it may be implemented, and specifically how it may be implemented with regard to a project-by-project basis. It was on the basis of these reasons that we issued our ruling denying the ATCO Power motion. With this principle in mind, we've reviewed the materials filed by NaturEner and while we won't make any further direction about striking portions of their submissions, we will be reluctant to consider evidence on a project-specific basis and we will carefully asses the weight of such evidence at the end of the day. We continue to hold the view that the specifics as how RAS and other related mechanisms should be applied and implemented would be better addressed in an OPP proceeding. The Commission considers that OPPs are a type of ISO rule and that they are, thus, subject to the provisions of the AUC Act and the Electric Utilities Act as they relate to ISO rules. 36 (emphasis added) 49. In its reply, NaturEner stated that there is currently no Commission approved written rule or practice setting out how the AESO manages transmission constraints in the planning stage through RAS arrangements. NaturEner also submitted that, while the AESO may be able to choose the scope of the TCM Rule, that does not negate the AESO s obligation to make a rule or establish a practice that encompasses all constraint management practices the AESO employs. 37 50. Further, NaturEner made reference to the AESO s July 21, 2009 letter with respect to how the AESO plans to address congestion that may be identified during the planning horizon. In the letter, the AESO anticipated clarifying the interplay between using operator and RAS constraint management, stating that RAS addresses congestion events that cannot be addressed through normal market dispatch (as will be provided for in the TCM rule) 38 Additionally, the AESO stated that, [o]nce the final TCM rule and RAS rules come into effect, the AESO will amend the OPP 500 series to ensure consistency with the final rules. 39 36 Proceeding ID 41, Transcript Vol. 1, pp. 87-89. 37 NaturEner Reply, p. 2. 38 AESO July 21, 2009 letter, p. 2. 39 AESO July 21, 2009 letter, p. 3. 12 AUC Decision 2009-174 (October 22, 2009)

51. NaturEner agreed with the AESO s intended direction as outlined above. 40 52. The Commission made no finding in the Decision respecting the application of subsection 15(2) of the Transmission Regulation to the TCM Rule. Subsection 15(2) enables the ISO to make or provide for specific and limited exceptions to the matters described in subsection 15(1)(e) and (f) in planning and arranging for enhancements to upgrades to the transmission system. 53. The Commission recognizes the AESO s intention to attend to how congestion will be addressed during the planning horizon through the RAS rules and practices. In this regard, the AESO has indicated that once the final TCM rule and RAS rules come into effect, the AESO will amend the OPP 500 series to ensure consistency with the final rules. The Commission expects that the OPP 500 series and RAS rules will be filed with the Commission pursuant to section 20.2 of the Electric Utilities Act. NaturEner will have the opportunity to present its positions as part of this proceeding, and again, if necessary as part of an objection proceeding to the ISO rule that is developed as a result of that process. 54. For all of the above reasons, the Commission finds that NaturEner has failed to satisfy these grounds for a review and variance of the Decision. 4.4 Conclusion of Commission Findings 55. The Commission finds that NaturEner has not provided any persuasive argument in support of their request that the Commission grant a review and variance of Decision 2009-042. 56. Accordingly, the Commission denies the request for review and variance of Decision 2009-042. Dated in Calgary, Alberta on October 22, 2009. ALBERTA UTILITIES COMMISSION (original signed by) Willie Grieve Chair (original signed by) Mark Kolesar Commissioner (original signed by) Moin A. Yahya Commissioner 40 NaturEner Reply, p. 2. AUC Decision 2009-174 (October 22, 2009) 13

APPENDIX 1 APPLICATION PARTICIPANTS Name of Organization Counsel or Representative Juliane Kniebel-Huebner Rosa Twyman Alberta Electric System Operator James H. Smellie TransAlta Corporation Renée Marx Alberta Utilities Commission Commission Panel W. Grieve, Chair M. Kolesar, Commissioner M. A. Yahya, Commissioner Commission Staff C. Wall, Commission Counsel S. Ramdin, Commission Counsel D. Lowther, Director, Market Rules C. Hughes, Senior Market Rules Analyst AUC Decision 2009-174 (October 22, 2009) 15