Media Statement – TransAlta provides another side of the issue concerning the MSA’s hearing application

Mar 27, 2014

Tuesday, March 25, 2014 (CALGARY, AB) — Documents recently filed with the Alberta Utilities Commission by the Market Surveillance Administrator address only one side of this dispute.
Not included in the MSA’s filings are extensive records that, in TransAlta’s view, clearly demonstrate that the MSA expressly permitted and encouraged economic withholding and the scheduling of plant outages to benefit a generator’s portfolio of electricity generation, which formed the basis of the actions taken by TransAlta as a participant in Alberta’s competitive, deregulated market. On October 8, 2010, TransAlta met with the MSA privately and the MSA approved of the conduct which is now the subject of the MSA’s complaint.
The MSA issued numerous documents approving portfolio bidding. These documents include the MSA’s Foundational Elements, the Analytical Framework, and Offer Behaviour Enforcement Guidelines, which can be found below. The actions were taken to create an effective, efficient, competitive market.
Foundational Elements (2010) states that:
 “In practice, leaving aside any relevant application of the specific conduct tests set out in the FEOC Regulation, in the view of the MSA this means that economic withholding or offering below avoidable cost are acceptable practices if they result (or are likely to result) in an overall gain in market efficiency.” (Page 8)
 “Foundational Elements also states that: “even on an annual basis the energy‐only market generates volatile prices. This is not an unexpected or undesirable outcome. However, over time the market must demonstrate that it is capable of returning sufficient revenue to recoup the costs of new investment and a return on capital.” (Page 9)
The Analytical Framework (2010) stated that:
“The MSA accepts that economic withholding is rational profit maximizing behaviour, for example, when a market participant has a long portfolio position (a net seller in the spot market). Similarly, below cost pricing is a rational strategy when the market participant has a short portfolio position (a net buyer in the spot market). In a workably competitive market both strategies are disciplined by the actions of competitors such that there is no expectation that a market participant can exert significant control over market outcomes.” (Page 3)
“. . . market participants are free to pursue individually profit maximizing behaviour that does not impact on rivals’ conduct. This would include strategies typically characterized as economic withholding . . . means offering available supply at a sufficiently high price in excess of the supplier’s marginal costs and opportunity costs so that it is not called on to run and where, as a result, the pool price is raised.” (Pages 9 and 10)
TransAlta maintains that in these and other documents the MSA issued a number of guidelines designed to increase power prices in Alberta to encourage investment in electricity generation. The MSA expressly permitted shut-downs to be scheduled to allow generators to increase market prices as part of the overall system of encouraging a competitive, deregulated market.

TransAlta maintains that a reliable and sustainable electricity system must have rules that are clear, concise, transparent and fair for all participants, which is the basis of our request to the AUC for a hearing.

As the documents filed indicate, plant shut-downs must first be necessary due to safety or maintenance concerns. All of the plants shut down by TransAlta in 2010 and 2011 that are the subject of the AUC hearing had mechanical failures that needed to be repaired.

TransAlta will address all of the filings and related documents at the AUC hearing. Further documentation will be provided in due course as part of the AUC hearing, when both sides of the issue will be heard.

TransAlta is a responsible market participant with a strong compliance program. TransAlta looks forward to addressing all of these and related issues at the AUC hearing.

Media Inquiries:

Stacey Hatcher
Senior Corporate Relations Advisor
Cell: 587-216-2242
Toll-free media number: 1-855-255-9184
Alternate local number: 403-267-2540