Effective Separation of Market Operations and Procurement and Contract Activities

Transcription

1 Effective Separation of Market Operations and Procurement and Contract Activities Prepared for the Management of Information Related to Contracts and Market Operation Working Group by the Independent Electricity System Operator and the Ontario Power Authority

2 Objective and Scope This discussion paper has been developed to help solicit stakeholder feedback on the controls that should be in place for the treatment of confidential procurement, contract management and market information at the new IESO effective January 1, 2015 The effective separation of functions in relation to confidential information will be achieved by the controls that are instituted by the combined organization. These controls will enable the organization to conduct its operations in a manner that prevents market participants or any class of market participant from being unjustly advantaged or disadvantaged and will prevent confidential information from being inappropriately communicated. Introduction Legislation amalgamating the Independent Electricity System Operator ( IESO ) and the Ontario Power Authority ( OPA ), and continuing them as the Independent Electricity System Operator ( IESO ) was passed by the Government of Ontario in July The legislation, which comes into effect on January 1, 2015, includes a requirement with respect to the separation of functions in the combined organization by which; The board of directors shall take such steps as it considers advisable and appropriate to ensure that there is an effective separation of functions and activities of the IESO relating to (a) its market operations; and (b) its procurement and contract management activities. The legislation also imposes the following duty on the IESO regarding its market operations: The IESO shall not conduct the operations of the IESO-administered markets in any manner that (a) unjustly advantages or disadvantages any market participant or class of market participants; or(b) is inconsistent with this Act. More generally, with respect to confidentiality, the legislation indicates that The board of directors shall ensure that appropriate procedures are established and maintained so that confidential information that is in the possession or control of any officers or employees of the IESO, or any agent or third party working on its behalf, is not inappropriately communicated. An overriding rationale for merging the IESO and OPA was to facilitate a more efficient and effective operation of Ontario s electricity system. Market operations and the procurement and contract management functions are expected to have increased collaboration in the amalgamated organization and function in a more co-ordinated 2

3 manner. However, this collaboration and co-ordination must also respect the requirement for effective separation and the no unjust operations provision, which protects all market participants. In order to determine what separation steps are advisable and appropriate, it is important to assess what concerns could arise if contracting and market operations functions were not separated. To that end, the IESO and OPA convened a working group to get stakeholder feedback. Stakeholder input received at the October 3, 2014 working group meeting reflected three areas for the new organization to consider: 1. treatment of commercially sensitive confidential information; 2. interaction between the rule amendment process and contract management; and 3. oversight and appeal/dispute resolution. This paper will discuss the first point raised by stakeholders. The other two areas identified are broader in scope and will require more time to address. Separation of Market Operations and Procurement and Contract Management Activities The requirement for effective separation of market operations and contract and procurement activities stems from the concern that market-related decision-making could be affected by information related to the terms and conditions of current procurement contracts, disputes relating to such contracts and the negotiation of future confidential contracts. There is an expectation that all market participants should have an opportunity to compete on a level playing field in the IESO-administered markets and that there is transparency in the rules and procedures under which this competition occurs. In the IESO markets, competition on the merits occurs through the bids, offers or other inputs submitted by individual market participants. Stakeholders have expressed a general concern that information about the costs or other terms in participant contracts, which will be available to certain IESO staff in the procurement and contract management functions, could be used by IESO staff within a market operations function to affect a market outcome that would differ from what would have been dictated by participants bids, offers or other inputs. As a result, participants or classes of participants could be unjustly advantaged or disadvantaged. Effective separation of certain confidential information related to procurement or contract management activities from IESO staff involved in the market operation functions is 3

4 required to protect against this potential outcome. This involves careful consideration of what procurement or contract-related information could be used to unjustly affect market outcomes and which market operations functions should be separated from this information. For the purpose of this review, the market operation functions include those functions or processes that directly impact the day to day IESO-administered markets (i.e., real-time energy, operating reserve markets, the day-ahead commitment process (DACP) and transmission rights). This includes those functions that are responsible for processes that: Accept and, where required, approve dispatch data from participants for the IESO s scheduling and optimization algorithms. Data managed includes bids, offers, forecasts, schedules, daily generator data and expedited operational data; Deliver the operating plan to the control room. Components of the operating plan include DACP results, a reliable outage schedule with appropriate notices to stakeholders, scheduled ancillary services, and appropriate forecasts, limits, contingencies and reserves; Operate the grid and markets according to applicable legislation, IESO policies, market rules, and electricity reliability standards (e.g. NERC and NPCC) resulting in coordinated market participant actions that enable energy to flow on demand; Investigate, correct and estimate dispatch results as required under market rules. Examples include administering prices and schedules, providing support for the resolution of settlement disagreements and, where appropriate, correcting data for settlements; Auction long-term and short-term rights to intertie Congestion Settlement Management Credits as a financial hedge against intertie congestion that might otherwise discourage market activity. The procurement and contract management activities may relate to electricity supply and capacity in or outside Ontario and also include conservation and demand response activities in Ontario. Activities in relation to the procurement generally include the following: procurement process design and development o stakeholder engagement and creation of draft program documents (e.g. RFP, program rules, contracts) procurement implementation and evaluation (as applicable) o implementing the procurement and evaluating proponent s submission in accordance with the procurement process specified in the program 4

5 documents (e.g. RFP, program rules) contract offer and execution o OPA Board approval is required prior to contract execution The procurement activities end once contracts have been executed and responsibilities for implementation shift to the OPA Contract Management Group. The contract management activities include: meeting OPA obligations under the contracts, including settlement enforcing supplier obligations under the contracts general contract administration including contract amendments, evaluating force majeure claims, assignments and change of control requests dispute resolution The OPA, in relation to its procurement and contract management activities, holds confidential information which may include: contract pricing or economic bid statements contract facility-specific information negotiated contracts or specific negotiated provisions personal information banking information provided for settlement The information that is considered confidential varies by procurement and contract. Protection of Confidential Information and Existing Controls The protection of confidential information is currently an obligation of both the OPA and the IESO and will be for the amalgamated organization. Both organizations have existing practices and procedures in place that control employee access to confidential information to prevent the misuse or external release of this information. Controls also restrict access to information within the organization to only those who require it for their duties and prohibit the distribution of confidential information beyond those who are entitled to have access. In many cases, these processes and practices are enshrined in governing documents, such as corporate policies. The effective separation of market operations and procurement and contract management activities may be achieved through a number of these existing controls that a) limit the flow of information, b) limit the opportunity for discretionary 5

6 decision-making, c) increase the transparency of decision-making or d) enforce policies, procedures and rules. These are described in more detail below. IESO Existing Controls a) Controls to limit the flow of information to only those that require it to perform their duties: i. The IESO market rules (chapter 3, section 5) define the principles for balancing accessibility to and confidentiality of information. In general, the IESO will make information accessible except where it may adversely affect the reliable operation of the IESO-controlled grid, the efficient operation of the IESO-administered markets, the financial or reputational health of the IESO or a market participant, or an individual person. ii. The IESO Process and Information Management policy restricts employee access to confidential information, only as required to carry out their duties. Categories of confidential information have established access restrictions. Handling restrictions that specifically restrict and limit the access, use (including purpose), and reproduction of the information may be added. Using these practices, those IESO employees designated as a process owner are obligated to specify the details for information management to all information producers and users as well as to detail the confidentiality classification. iii. The IESO Information Security Standard requires that all IT systems must have the capability to restrict access to information to meet requirements defined by the appropriate process owner and that process owners must ensure that access is only provided to those who need the information to perform their assigned work. b) Controls to limit the amount of discretion allowed in decision-making: i. Market-related decision-making is almost entirely made through automated computer algorithms, and based on participants submitted information such as bids and offers. ii. The IESO has established control room procedures to guide the operators actions where intervention into the dispatch process in response to reliability-related conditions cannot practically be incorporated into automated computer algorithms. c) Controls to provide transparency in decision-making: i. Dispatch algorithms are based on market rules and audited every two years to ensure proper functioning. 6

7 ii. iii. Market manuals provide principles and criteria for taking manual, reliability-related actions and the reporting on such actions. The market rules and manuals guiding these processes are publicly available and changes to the market rules are made through a stakeholder consultation process. d) Controls to enforce policies, procedures and rules: i. The Market Assessment and Compliance Division monitors and can sanction the IESO for non-compliance with the market rules. ii. All IESO employees have agreed to follow standards of conduct including following all rules defined in governing documents (includes legislation and market rules), policies (includes information management and security policies), standards and processes. The IESO will take disciplinary action, up to and including dismissal, for breach of this code. OPA Existing Controls The Contract Management and Procurement functions of the OPA contain safeguards to ensure the protection and non-disclosure of confidential information, to ensure that confidential information is only used for specific purposes and to protect the fairness of the procurement process. Procurement Activities: The OPA has the following practices and procedures in place to manage confidential information during the procurement processes. For competitive and standard offer programs, the RFP / program rules set out how confidential information is treated as part of the procurement process. In the case of bilateral negotiations, confidentiality agreements are put in place governing the treatment of confidential information exchanged during the negotiations. Access to proposal/application submissions is restricted to the procurement team and the evaluation team, as applicable. Certain proposal/application information may be shared with other groups/divisions as part of the procurement process and in accordance with procurement process rules (e.g. connection availability testing performed by power system planning requires access to proposed connection information). Part of the design and development stage of each procurement process is soliciting feedback from stakeholders on the procurement design. This practice is expected to 7

8 continue in the amalgamated organization. Contract Management Activities: OPA contracts have covenants setting out what confidential information is and how confidential information needs to be protected. There are documented business processes in place to enforce these obligations. Contract Management has instituted the following controls to protect confidential information: Electronic contract-related files are only available to staff on an as-needed basis. Job duties must be directly pertinent to the content of the contracts for access. Where generic contracts are available through internal directories (as is the case for contracts that result from public posting during the procurement process, or through standard offer programs), specific project-related information is retained as confidential and restricted to staff who require such specifics. Hard copies of contracts are retained centrally by the Legal and Regulatory Affairs group in locked cabinets. Settlement-related information is segregated within the OPA settlement section in the Contract Management Group. Finally, all IESO and OPA employees have agreed to follow standards of conduct including following policies (includes confidentiality), standards and processes. Both organizations will take disciplinary action, up to and including dismissal, for breach of these codes. These codes of conduct are publically available on the IESO s and OPA s website. Conclusion For day one of the amalgamated organization, the continuation of these existing controls are expected to constitute an advisable and appropriate approach to make sure that the employees who conduct the market operations of the IESO will not have access to confidential contract and procurement information. However, the IESO and OPA will review existing controls and any stakeholder feedback received to develop a recommended set of policies and procedures for the new organization. Recommendations will be based on the following principles: 1. Market operations and the procurement and contract management functions are expected to have increased collaboration in the amalgamated organization and function in a more co-ordinated manner. The separation effected by the controls 8

9 pertaining to confidential information must be sufficient to maintain confidence in the market while allowing for the effective and efficient operation of the power system, and ensuring fair and effective management of contracts. 2. Information which is designated confidential should be securely confined within the area that receives it (i.e. market operations or procurement or contract management) and, in general, will only be used for the purposes for which it was provided. In circumstances when it is necessary to share confidential information within the organization, it would be done so on the basis of the following principles: a. Information will not be communicated for the purposes of, or where the likely effect would be the unjust advantage or disadvantage of any market participant or any class of market participant. b. Confidentiality must be maintained by the receivers and the information is not to be used for a purpose that is not permitted by the governing confidentiality obligation (e.g. contract or procurement document). c. Information should be shared on a basis that does not identify the individual facility/owner if not required for the performance of the function (e.g., aggregated data or not attributed). These recommendations, along with stakeholder feedback, will be provided to the new IESO Board of Directors for consideration. 9