IESO’s plan to give its staff authority to set market parameters without approval by the Board of Directors has sparked a debate over the ISO’s governance and the role of stakeholders. 

The board has been responsible for setting parameters used in the calculation engines since the ISO’s market launch in 2002. But the changed composition of the board and increasing complexity under the Market Renewal Program (MRP) mean the process is “outdated,” Josh Duru, senior market rules and manuals adviser, said in an engagement session Sept. 16. 

The parameters include the maximum market clearing price (MMCP), maximum operating reserve price (MORP), constraint violation penalties and floor prices for variable generators, and “flexible” nuclear. The MRP added the determination of the settlement floor price to the board’s responsibilities. 

Under the proposed change, the parameters would be set by IESO, “with stakeholder input, in the same way in which most other market rule requirements are established,” the ISO said. The board would “maintain its usual oversight and approval function but should not be required to set technical parameters directly.” 

Changes to the Board of Directors

“At market opening, the board had 15 members, nine of which were stakeholder directors. So, at that point in time, they had the … very technical knowledge in order to set these values,” explained Jo Chung, supervisor of market rules and manuals. “But over the years, that has obviously changed, and we don’t have that stakeholder representation directly on the board.” 

The composition of the board changed as part of the 2015 merger of IESO and the Ontario Power Authority. 

The board, which is appointed by the provincial government, currently includes CEO Lesley Gallinger and five others: 

• • interim board Chair David Collie, former CEO of the Electrical Safety Authority of Ontario and a former executive at Burlington Hydro and Hydro One; 
  • Simon Chapelle, who runs a consulting firm focusing on telecommunications and rural economic development and is former municipal councilor for the city of Kingston; 
  • Frank Fazzari, head of accounting firm Fazzari + Partners; 
  • Tom Mitchell, former CEO of Ontario Power Generation (OPG); and  
  • Robert Wong, principal of executive consulting firm Hesketh Sloane Advisory and former chief information officer at Toronto Hydro-Electric System. 

• Stakeholder Concerns

The proposal to change how parameters are approved led to a lengthy debate during the webinar about the ISO’s governance and transparency. 

“This seems like a pretty dramatic change, despite the fact that it’s being portrayed as something different,” said Akira Yamamoto, director of regulatory and market policy for TransAlta. 

Yamamoto said other grid operators have an “independent adjudicator” involved in approving changes for essential parameters such as price floors and caps. 

“That whole process … in Ontario is a little bit more inside baseball, but there was some process,” Yamamoto said. “And I think the entire elimination of it raises pretty significant concerns about how dramatically the market design could potentially be changed at, ultimately, a staff level.” 

Chung insisted the change is not intended to undermine transparency and noted that the MMCP and MORP have not changed in more than 20 years. 

Role for Technical Panel on Manuals

The discussion also touched on questions over what goes into the market rules, rather than the market manual, and when the ISO should bring such changes to the Technical Panel for public discussion.  

The Technical Panel has authority over changes to market rules but not manuals. (See What to Know About IESO.) 

“That’s always been a debate,” said Julien Wu, director of regulatory affairs at Brookfield Renewable’s Evolugen and a former member of the Technical Panel. 

IESO’s Duru said staff are discussing with the panel when it should review market manuals. 

“I’ll be very pleased if I see this matter actually addressed,” responded OPG’s Vladislav Urukov, who represents market participant generators on the Technical Panel. 

“If you remove the board oversight, and also were somehow able to make changes outside of Technical Panel oversight as well, I think that would be quite concerning. I think that there has to be some means for the participants to object and put counterarguments,” he continued. “And to date, I haven’t found that the baseline change process is robust enough and transparent enough and visible enough [to afford] such feedback. 

“What the ISO hasn’t really done to the extent that it ought to have is present analysis — technical analysis — that supports some of the values. … There has to be very robust, extensive analysis that participants can digest and challenge some of the assumptions … to be able to appreciate why the ISO is picking a value. You know, ‘Why is it 100 and not 125?’” 

Urukov added that he is concerned that “if the discussion of the manuals goes in a way that isn’t helpful, then there’s no guarantee that this would actually go to the Technical Panel. And if it’s only an education session, then there is no ability for participants to vote against or object.” 

IESO’s Chung responded that to change the MMCP, “the ISO would have to go through a very robust stakeholder engagement [and] probably include consultants to provide analysis. 

“We would not just change the value lightly. It would be a pretty big process.” 

Wu said he agreed the board should not be setting technical parameters. 

But, he said, “there’s a difference between saying that the board itself is not going to set the parameters [and] removing that obligation for the board to have some kind of governance review of the parameters.” 

To “remove any kind of board oversight — that takes away the ability of market participants outside of the consultation process to document any kind of concern or disagreement with the output values,” Wu continued. “So maybe there is a middle way where the board itself doesn’t have the authority to set — or responsibility to set — these values, but there’s still a way, either through the [Technical Panel] or anywhere else, where serious concerns can still be [documented] by the market participants.” 

Less Discretion

Yamamoto said IESO should not expect stakeholders to give the grid operator the level of deference they did during the development of the MRP, saying the ISO should return “to a more robust forum.” 

“Saying, ‘Well, this worked for MRP, and therefore we’re going to design the going-forward processes as if we need all this discretion that we had in MRP’ is a wrong-minded approach,” he said. 

IESO: Goal is to Increase Transparency

James Hunter, IESO’s director of legal services, said the ISO is seeking to increase, not reduce, transparency and opportunities for input. 

He noted that the legacy rules do not require that the parameter values be published in either the rules or the manuals and gives the ISO board power to change them without any stakeholder engagement. 

“MRP introduced the constraint violation penalty values into the manuals for the first time in order to increase transparency around them,” Hunter said. “MMCP and MORP have never been published. We’re proposing to add them to the manuals. And the objective is not to request discretion from stakeholders. What we’re trying to do is bring the establishment of these values into alignment with other technical parameters that are in the market rules. 

“We want to increase transparency by publishing the manuals. … There’s opportunity for stakeholder feedback that has not been the case historically.” 

But, he acknowledged, “I think what we’ve heard today is — in various forms — the suggestion that maybe there’s a need or an opportunity for even more stakeholder involvement into establishing these values. 

“I think we’ll certainly talk about this [at the October Technical Panel meeting] as an instance of the more general question about how to determine where content is placed and rules and manuals.” 

Next Steps

Following the engagement session, ISO officials extended the deadline for written feedback on the proposal by one week to Sept. 30, as requested by Wu. 

The Technical Panel will discuss the proposal Oct. 7, with a scheduled vote Nov. 11, preceding a board vote Dec. 8.