Decision 2010-383 Shell Canada Limited and ATCO Power Canada

Decision 2010-383

Shell Canada Limited and ATCO Power Canada Limited

Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited

August 10, 2010

ALBERTA UTILITIES COMMISSION Decision 2010-383: Shell Canada Limited and ATCO Power Canada Limited Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited

Application No. 1605934 Proceeding ID 511

August 10, 2010

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 RELEVANT STATUTORY AND REGULATORY PROVISIONS ...... 2 3 DISCUSSION AND FINDINGS...... 4 3.1 Fair, Efficient and Openly Competitive Operation of the Market ...... 4 3.2 Reasonably Necessary...... 7 3.3 Terms and Conditions...... 8 4 ORDER ...... 8 4.1 Muskeg River Asset ...... 8 4.2 ATCO Power Scotford Asset...... 9

APPENDIX 1 – PROCEEDING PARTICIPANTS...... 10

APPENDIX 2 – ABBREVIATIONS ...... 11

AUC Decision 2010-383 (August 10, 2010) • i

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ii • AUC Decision 2010-383 (August 10, 2010)

ALBERTA UTILITIES COMMISSION Calgary, Alberta

SHELL CANADA LIMITED AND ATCO POWER CANADA LIMITED PREFERENTIAL SHARING OF RECORDS BETWEEN Decision 2010-383 SHELL CANADA LIMITED AND Application No. 1605934 ATCO POWER LIMITED Proceeding ID 511

1 INTRODUCTION AND BACKGROUND

1. On February 23, 2010, Shell Canada Limited (Shell) filed an application (Initial Application) with the Alberta Utilities Commission (AUC or Commission) pursuant to section 3 of the Fair, Efficient and Open Competition Regulation requesting that the Commission issue an order permitting the sharing of records not available to the public (Preferential Records) between Shell Canada Limited and ATCO Power Limited (ATCO). The Initial Application requested an order regarding: (a) the Shell Albian Sands Industrial Complex north of Fort McMurray (Albian Sands) where ATCO, in partnership with SaskPower International Inc., own the “MRM Cogeneration Facility” (Muskeg River) used to support Shell’s industrial process, and (b) the Scotford Industrial Complex northeast of Fort Saskatchewan (Scotford Upgrader) where ATCO owns the ATCO Power Scotford cogeneration facility (Scotford) used to support the Scotford Upgrader. The Commission registered the filing as Application No. 1605934 and Proceeding ID 511.

2. The Commission issued a Notice of Proceeding regarding the Initial Application on March 16, 2010. In the Notice of Proceeding, the Commission advised that the parties granted standing in the proceeding were limited to Shell and the Market Surveillance Administrator (MSA) in accordance with subsection 3(5) of the Fair, Efficient and Open Competition Regulation. The Notice of Proceeding established a process and schedule for the MSA to determine whether it would intervene in the proceeding and to advise the Commission as to whether it required an evidentiary process.

3. On March 23, 2010, the MSA filed a Statement of Intent to Participate (SIP) and advised the Commission that it received a copy of the Initial Application in accordance with subsection 3(4) of the Fair, Efficient and Open Competition Regulation. The MSA indicated that it wished to participate in the proceeding, and that it objected to the Initial Application on the basis that the Initial Application did not provide sufficient information to meet the minimum filing requirements established by the Commission and, as such, the MSA was unable to do a complete assessment of the matters at issue.

4. On March 30, 2010, Shell advised the Commission that it had reviewed the MSA’s SIP and scheduled meeting with the MSA for April 13, 2010 to review and discuss the Initial Application with the MSA. On April 13, 2010, Shell advised the Commission that it intended to enhance the Initial Application and re-file its application. On May 4, 2010, the Commission issued a schedule to allow Shell to re-file its application and to provide the MSA time to respond to the re-filing.

AUC Decision 2010-383 (August 10, 2010) • 1 Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited Shell Canada Limited and ATCO Power Canada Limited

5. On May 17, 2010, Shell and ATCO Power Canada Limited (ATCO Power) filed an application seeking a separate approval to share Preferential Records at the Albian Sands and the Scotford Upgrader (Amended Application). In the Amended Application, Shell advised that it had responded to the MSA’s concerns identified with the Initial Application by, among other things, having ATCO Power join the Amended Application, providing some additional detail to Appendix C1 and confirming that Shell’s compliance program had been fully implemented.1

6. On May 21, 2010, the MSA advised the Commission that it supported the Amended Application and would not require an evidentiary process in the proceeding. The record for Proceeding ID 511 closed on May 21, 2010.

7. A glossary of abbreviations used in this Decision can be found in Appendix 2.

8. In reaching the determinations contained within this Decision, the Commission has considered all relevant materials comprising the record of this proceeding. Accordingly, references in this Decision to specific parts of the record are intended to assist the reader in understanding the Commission’s reasoning relating to a particular matter and should not be taken as an indication that the Commission did not consider all relevant portions of the record with respect to that matter.

2 RELEVANT STATUTORY AND REGULATORY PROVISIONS

9. The relevant statutory provisions respecting the sharing by market participants of records that are not available to the public are found in the Fair, Efficient and Open Competition Regulation, and the acts that this regulation was enacted pursuant to, the Alberta Utilities Commission Act and the Electric Utilities Act.

10. Section 5 of the Electric Utilities Act lists some of its purposes as follows:

(b) to provide for a competitive power pool so that an efficient market for electricity based on fair and open competition can develop, where all persons wishing to exchange electric energy through the power pool may do so on non- discriminatory terms …; (c) to provide for rules so that an efficient market for electricity based on fair and open competition can develop in which neither the market nor the structure of the Alberta electric industry is distorted by unfair advantages of government-owned participants or any other participant; … (e) to enable customers to choose from a range of services in the Alberta electric industry, including a flow-through of pool price and other options developed by a competitive market, and to receive satisfactory service; … (h) to provide for a framework so that the Alberta electric industry can, where necessary, be effectively regulated in a manner that minimizes the cost of regulation and provides incentives for efficiency.

1 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), pages 2-3.

2 • AUC Decision 2010-383 (August 10, 2010) Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited Shell Canada Limited and ATCO Power Canada Limited

11. The Electric Utilities Act further states in section 6 that “[m]arket participants are to conduct themselves in a manner that supports the fair, efficient and openly competitive operation of the market.”

12. It is abundantly clear, therefore, that competition and the amelioration of anti-competitive market power is the thrust of the legislation governing electricity in Alberta. The Fair, Efficient and Open Competition Regulation adds clarity to what is allowed and forbidden by the various market participants.

13. Specifically, subsection 3(1) of the Fair, Efficient and Open Competition Regulation establishes that a market participant will not share records that are not available to the public relating to any past, current or future price and quantity offer made to the power pool or for the provision of ancillary services. Subsection 3(2) of the Fair, Efficient and Open Competition Regulation establishes instances where records that are not available to the public may be shared. Subsection 3(3) of the Fair, Efficient and Open Competition Regulation, which allows the Commission to issue an order permitting the sharing of records, states:

(3) The Commission may, on application by a market participant that is otherwise prohibited from sharing records referred to under subsection (1), issue an order permitting the sharing of those records on any terms and conditions the Commission considers appropriate where the market participant establishes that

(a) the records will not be used for any purpose that does not support the fair, efficient and openly competitive operation of the electricity market, including the conduct referred to in section 2, and

(b) the sharing of the records is reasonably necessary for the market participant to carry out its business.

14. Section 2 of the Fair, Efficient and Open Competition Regulation identifies conduct by a market participant that does not support the fair, efficient and openly competitive operation of the market. Relevant to the sharing of records, proscribed conduct would include:

(h) restricting or preventing competition, a competitive response or market entry by another person, including

(i) a market participant directly or indirectly colluding, conspiring, combining, agreeing or arranging with another market participant to restrict or prevent competition, … …

(j) manipulating market prices, including any price index, away from a competitive market outcome;

15. The sharing by two market participants of their non-public records has the potential to allow collusion and price-fixing by these participants, especially if the two participants have a substantial market share or market power. Such collusion can be harmful to the marketplace as a whole, especially consumers. It is, therefore, incumbent upon the Commission to carefully scrutinize record-sharing agreements in order to maintain the competitive environment that the Electric Utilities Act so ardently emphasizes as its goal.

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16. Adam Smith had famously observed that “[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”2 The Electric Utilities Act and the Fair, Efficient and Open Competition Regulation, therefore, give life to Adam Smith’s entreaty that “though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”3

17. Additionally, the Electric Utilities Act stresses that any regulatory framework should minimize the costs of regulation and allow for efficiencies.

18. With that in mind, the Commission must look to any record-sharing agreement under the twin lenses established by subsection 3(3) of the Fair, Efficient and Open Competition Regulation.

3 DISCUSSION AND FINDINGS

3.1 Fair, Efficient and Openly Competitive Operation of the Market 19. ATCO Power and Shell currently have an agency agreement in place for the Albian Sands. Under the agency agreement ATCO Power is responsible for the development and submission of the Preferential Records to the Alberta Electric System Operator (AESO) for Muskeg River. Similarly, Shell and ATCO Power indicated that ATCO Power has obtained the authority from the AESO to develop Preferential Records in relation to the Scotford unit. Both Shell and ATCO Power have on-site personnel that are responsible for these cogeneration facilities. Shell and ATCO Power submit that the requirement of Shell to receive the Preferential Records is to operate these cogeneration facilities in real time and to comply with the ISO rules.4

20. Shell and ATCO Power submitted that Shell operations team leaders and control room operations staff (Shell Operators) have operated the ATCO Power cogeneration facilities and have had access to the Preferential Records since the start of operation of both Scotford and Muskeg River (in 2002 and 2003, respectively).5

21. Shell and ATCO Power submitted a list of plants over which the two entities have offer control as defined in subsection 5(5) of the Fair, Efficient, and Open Competition Regulation.6 7

22. Shell and ATCO Power, as co-applicants, have submitted that Preferential Records for Muskeg River and Scotford are developed by ATCO Power, submitted to the AESO by ATCO Power and are provided to Shell Operators thereafter. The applicants also submitted that there are no Preferential Records developed by Shell and provided to ATCO Power. Accordingly, the Commission has considered whether ATCO Power’s record sharing is reasonably necessary and

2 Adam Smith, The Wealth of Nations (Bantam Classic: New York, NY, 2003), Chapter I, Book X, Part II, page 177. 3 Ibid. 4 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), pages 2-4. 5 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), page 2. 6 Exhibit 14, MSA Correspondence filed May 21, 2010 concerning Amended Application, page 1. 7 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), Appendix E and F, pages 15-16.

4 • AUC Decision 2010-383 (August 10, 2010) Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited Shell Canada Limited and ATCO Power Canada Limited

whether ATCO Power established that the records would not be used for any purpose that did not support the fair, efficient and openly competitive operation of the market.8

23. Shell and ATCO Power share the Preferential Records according to the following general process:

1. Shell Operators advise ATCO Power’s cogeneration manager and assistant manager (or designate) (ATCO Managers) of the expected electrical and steam requirements of the site;

2. ATCO Managers advise ATCO head office marketing staff (ATCO Calgary) of the expected electrical and steam requirements of the site;

3. ATCO Calgary develops the Preferential Records, taking into account the expected electrical steam requirements of the site, and submits the offers to the AESO; and

4. ATCO Calgary advises ATCO Managers and Shell Operators of the Preferential Records that have been submitted to the AESO.9

24. Shell and ATCO Power advised that access to the Preferential Records is limited to the ATCO Managers, Shell Operators and ATCO Calgary at each location. Shell confirmed that procedures and processes are in place to ensure that the Preferential Records are kept confidential and that the information is only used for the purpose of operating the cogeneration facilities at the Albian Sands and Scotford Upgrader.10

25. An officer of Shell’s Operations Group represented that a formal program for internal compliance of the Preferential Records had been implemented. The representation submitted that the compliance program includes:

1. all Shell Operators who are provided with access to the Preferential Records are provided with training to ensure they understand the confidential nature of the Preferential Records and the requirements to keep the information confidential;

2. each Shell Operator has signed a form that states they understand the confidential nature of the Preferential Records and will not disclose the Preferential Records to other Shell employees or to the public;

3. computer systems used to convey the Preferential Records to the Shell Operators have been configured to ensure that the Preferential Records information cannot be accessed by any Shell employee other than the Shell Operators; and

4. Shell will include the requirement to keep the Preferential Records confidential as part of on-going Shell Operators training programs.11

8 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), pages 2-3. 9 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), page 4. 10 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), page 4 and paragraph 9, page 7. 11 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), Appendix D, page 13.

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26. An additional representation was made by a corporate officer of Shell12 to indicate that the Preferential Records provided by ATCO Power would not be used by any Shell employee for any purpose that does not support the fair, efficient and openly competitive operation of the Alberta electricity markets, including the conduct referred to in section 2 of the Fair, Efficient and Open Competition Regulation.

27. ATCO Power provided a representation that the Preferential Records provided by ATCO Calgary to the Shell Operators for the Albian Sands and Scotford Upgrader are necessary for Shell and ATCO Power to operate the facilities in a safe and appropriate manner and to ensure that Shell and ATCO Power will continue to comply with the ISO rules. In addition, ATCO Power provided a representation that the Preferential Records are being provided with the intention that they will not be used for any purpose that does not support the fair, efficient and openly competitive operation of the electricity market.13

Commission Findings 28. In determining whether the records shared will not be used for any purpose that does not support the fair, efficient and openly competitive operation of the electricity market, the Commission has considered the following:

• the role that Shell Operators have with respect to the price and quantity offers of the Muskeg River and Scotford units at the respective industrial sites;

• the details of the compliance program described in Shell’s operational representation;

• the list of plants comprising the offer control of Shell and ATCO Power; and

• the support provided by the MSA’s May 21, 2010 SIP regarding the Amended Application.

29. With respect to this latter consideration, the Commission finds that based on the submission of the MSA, that the concerns which caused the MSA to object on the basis of the Initial Application have been addressed.

30. With respect to Shell’s operational representation, the Commission considers Shell’s compliance program to be sufficient for the receipt of Preferential Records from ATCO Power.

31. The representation of a formal program for internal compliance and the corporate representations from senior officers of Shell and ATCO Power with respect to the use, or intended use, of the Preferential Records provide the Commission with some comfort that confidential information will not be shared from ATCO Power to Shell for the purposes of price- fixing, price-manipulation or other conduct proscribed by the Fair, Efficient and Open Competition Regulation. The Commission considers the current Preferential Record sharing process as a measure that reduces the risk of tacit collusion or the development of anti- competitive advantages in the market.

32. Based on submissions of the parties, the Commission finds that ATCO Power has established that the Preferential Records provided to Shell will not be used for any purpose that does not support the fair, efficient and openly competitive operation of the electricity market.

12 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), Appendix A, page 11. 13 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), Appendix B, page 12.

6 • AUC Decision 2010-383 (August 10, 2010) Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited Shell Canada Limited and ATCO Power Canada Limited

3.2 Reasonably Necessary 33. At each location, the ATCO Managers operate the ATCO Power cogeneration units by providing technical, operations and maintenance directions to Shell Operators.14

34. ATCO Power directs the operation of the Muskeg River cogeneration facility and the Scotford cogeneration facility in accordance with the Shell / ATCO Power Albian (MRM) Cogeneration Project Agreement and the Shell / ATCO Power Upgrader Cogen Facility Power and Steam Supply Agreement (the Agreements). Excerpts of the Agreements were filed as appendices to the Amended Application.15

35. ATCO Power and Shell have agreements in place which allow for or otherwise assign to ATCO Power the responsibility of submitting Preferential Records to the AESO.16

36. A common control room is utilized to operate both the Albian Sands and ATCO Power’s equipment. Shell and ATCO Power have on-site personnel that are responsible for the operation of the cogeneration facilities and Shell and ATCO Power submit that the requirement for Shell Operators to receive the Preferential Records is to operate the cogeneration facilities in real time and to comply with the ISO rules.17

37. Shell’s and ATCO Power’s corporate representation indicated that the preferential records provided by ATCO Power are necessary for Shell and ATCO Power to operate the facilities in a safe and appropriate manner and to ensure that Shell and ATCO Power will continue to comply with the [ISO] rules.18

Commission Findings 38. The Commission notes the submissions of Shell and ATCO Power regarding the nature of the records that will be shared, the operational and record sharing arrangements regarding Muskeg River and Scotford cogeneration facilities as well as Shell and ATCO Power’s representation that the sharing of Preferential Records is reasonably necessary for Shell and ATCO Power to carry out their respective businesses.

39. As well, the Commission notes that Appendices C1 and C2 of the Amended Application indicate that the sharing of information with Shell Operators is reasonably necessary for ATCO Power to comply with the Agreements it has in place with Shell.

40. For the reasons mentioned above, the Commission finds that ATCO Power has established that the sharing of Preferential Records which ATCO Power develops and provides to Shell (as described in the Amended Application) is reasonably necessary for ATCO Power to carry out its business.

14 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), page 4. 15 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), Appendix C1 and C2, page 13. 16 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), pages 2-3. 17 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), pages 2-4. 18 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), Appendix A and B, pages 11-12.

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3.3 Terms and Conditions 41. In the Amended Application, the applicants requested that the term of the order issued by the Commission be “without time limitation” subject to any changes to the processes and procedures for the sharing of the Preferential Records as described in the Amended Application or the termination of an agreement between Shell and ATCO Power. Further, the applicants requested that a separate approval be issued for each location.19

Commission Findings 42. Subsection 3(3) of the Fair, Efficient and Open Competition Regulation authorizes the Commission to issue an order permitting the sharing of records on any terms and conditions that the Commission considers appropriate.

43. The Commission considers an order without a time limitation to be impractical given the finite term of the Fair, Efficient and Open Competition Regulation. Further, the Commission finds that Shell and ATCO Power did not provide a compelling reason for an order from the Commission permitting the sharing of records beyond the term of the Fair, Efficient and Open Competition Regulation. Section 7 of the Fair, Efficient and Open Competition Regulation states that the regulation expires on June 1, 2029. As such, the Commission’s authority to grant the order requested by Shell and ATCO Power will also expire on June 1, 2029.

44. The Commission considers the price and quantity offers and the provision of ancillary services described in subsection 3(1) of the Fair, Efficient and Open Competition Regulation to be asset specific rather than location specific. The requested order is not specific to the cogeneration facilities which support the industrial processes. The Commission notes that a separate approval is sought for the Albian Sands and the Scotford Upgrader industrial sites.

45. The Commission finds that Shell and ATCO did not provide a compelling reason for an order on the basis of either the Albian Sands or Scotford Upgrader location. Given that the price and quantity offers or provision of ancillary services are associated with particular assets at those locations, the Commission finds an asset-specific order for Muskeg River and Scotford cogeneration facilities to be in keeping with the legislative intent.

4 ORDER

46. IT IS HEREBY ORDERED THAT, pursuant to the provisions of section 3 of the Fair, Efficient and Open Competition Regulation, that ATCO Power Canada Limited be permitted to share records referred to in subsection 3(1) of the Fair, Efficient and Open Competition Regulation with Shell Canada Limited until the earlier of June 1, 2029 or the termination of the agreement, subject to the following terms and conditions:

4.1 Muskeg River Asset 1. That the order apply to the sharing of price and quantity information with respect to the Muskeg River asset.

2. That the order apply to the sharing of price and quantity information made to the power pool or for the provision of ancillary services.

19 Exhibit 12.03, AUC Application for Preferential Records (Amended May 17, 2010), page 5.

8 • AUC Decision 2010-383 (August 10, 2010) Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited Shell Canada Limited and ATCO Power Canada Limited

3. That Shell Canada Limited and ATCO Power Canada Limited notify the Commission of the termination of the agreement between Shell Canada Limited and ATCO Power Canada Limited.

4. That Shell Canada Limited and ATCO Power Canada Limited notify the Commission of any material changes to the information contained within its Amended Application that may impact the compliance of Shell Canada Limited or ATCO Power Canada Limited with the Fair, Efficient and Open Competition Regulation.

4.2 ATCO Power Scotford Asset 1. That the order apply to the sharing of price and quantity information with respect to the ATCO Power Scotford asset.

2. That the order apply to the sharing of price and quantity information made to the power pool or for the provision of ancillary services.

3. That Shell Canada Limited and ATCO Power Canada Limited notify the Commission of the termination of the agreement between Shell Canada Limited and ATCO Power Canada Limited.

Dated on August 10, 2010.

ALBERTA UTILITIES COMMISSION

(original signed by)

Tudor Beattie, Q.C. Panel Chair

(original signed by)

Bill Lyttle Commissioner

(original signed by)

Moin A. Yahya Commissioner

AUC Decision 2010-383 (August 10, 2010) • 9 Preferential Sharing of Records between Shell Canada Limited and ATCO Power Canada Limited Shell Canada Limited and ATCO Power Canada Limited

APPENDIX 1 – PROCEEDING PARTICIPANTS

Name of Organization (Abbreviation) Counsel or Representative

Desiderata Energy Consulting (on behalf of Shell Canada Limited (Shell)) W. Dale Hildebrand

ATCO Power Canada Limited (ATCO Power) Dave Lugg

Market Surveillance Administrator (MSA) Douglas Wilson

Alberta Utilities Commission

Commission Panel T. Beattie, Q.C. Panel Chair B. Lyttle, Commissioner M. A. Yahya, Commissioner

Commission Staff C. Wall, Commission Counsel S. Ramdin, Commission Counsel D. Lowther, Director, Markets C. Hughes, Senior Analyst, Markets

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APPENDIX 2 – ABBREVIATIONS

(Return to text)

Abbreviation Name in Full AESO Alberta Electric System Operator AUC or Commission Alberta Utilities Commission ATCO ATCO Power Limited ATCO Power ATCO Power Canada Limited MSA Market Surveillance Administrator SIP Statement of Intent to Participate Shell Shell Canada Limited

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