Securities Law & Instruments


Headnote

Application for a ruling pursuant to section 78 of the Commodity Futures Act varying a previous ruling that granted to the filer relief from the dealer registration requirement set out in section 22 of the CFA and the trading restrictions in section 33 of the CFA to the Filer, a commercial end-user, in connection with certain trades in Electricity Contracts on, or through the facilities of, Non-Canadian Exchanges that are conducted by the Filer as principal for its own account -- previous ruling varied to also allow the Filer to trade Natural Gas Contracts on the same terms and conditions -- relief subject to sunset clause.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20. as am., sections 22 and 78.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, c. C.20, AS AMENDED (the CFA)

 

AND

 

IN THE MATTER OF

BRUCE POWER L.P.

(the Filer)

 

RULING

(Section 78 of the CFA)

Background

Previous Ruling

As the result of an application dated March 21, 2017 that was made by the Filer to the Ontario Securities Commission (the Commission) pursuant to section 38 of the CFA, the Filer obtained from the Commission a ruling dated September 12, 2017, In the Matter of Bruce Power (the Previous Ruling).

The Previous Ruling exempted the Filer from the dealer registration requirements in the CFA (as defined below) and the trading restrictions in the CFA (as defined below) in connection with trades in Electricity Contracts (as defined below) that are made on, or through the facilities of, exchanges located outside Canada (Non-Canadian Exchanges), and that are conducted by the Filer as principal for its own account:

(a) through a person or company that is registered as an FCM (as defined below) with the CFTC (as defined below), is a member of the NFA (as defined below), and has obtained from the Commission an order granting an exemption from both the dealer registration requirements in the CFA and the trading restrictions in the CFA (a US Registrant); or

(b) as a direct electronic access trade that is made on, or through the facilities of, a Non-Canadian Exchange that has obtained from the Commission an order granting an exemption from the requirement to be recognized as a stock exchange under the OSA (as defined below) and the requirement to be registered as a commodity futures exchange under the CFA (a Direct Access Trade).

New Decision

The Commission has now received an application (the Application) from the Filer for a ruling pursuant to section 78 of the CFA (the Ruling) that varies the Previous Ruling for the sole purpose of allowing the Filer to trade both Natural Gas Contracts (as defined below) and Electricity Contracts in accordance with the same terms and conditions that are currently imposed upon its trading of Electricity Contracts pursuant to the Previous Ruling.

AND WHEREAS for the purposes of this Ruling:

(i)

"CFTC" means the United States Commodity Futures Trading Commission;

"dealer registration requirements in the CFA" means the provisions of section 22 of the CFA that prohibit a person or company from trading in Exchange-Traded Futures unless the person or company satisfies the applicable provisions of section 22 of the CFA;

"Electricity Contract" means an Exchange-Traded Futures that has an electricity price as its underlying interest;

"Exchange-Traded Futures" means a commodity futures contract or a commodity futures option that trades on, or through the facilities of, one or more Non-Canadian Exchanges and that is cleared through one or more clearing corporations located outside of Canada;

"FCM" means a futures commission merchant;

"Natural Gas Contracts" means an Exchange-Traded Futures that has a natural gas price as its underlying interest;

"NFA" means the National Futures Association in the United States;

"OSA" means the Securities Act (Ontario); and

"trading restrictions in the CFA" means the provisions of section 33 of the CFA that prohibit a person or company from trading in Exchange-Traded Futures unless the person or company satisfies the applicable provisions of section 33 of the CFA; and

(ii) terms used in this Ruling that are defined in the OSA, and not otherwise defined in this Decision or in the CFA, shall have the same meaning as in the OSA, unless the context otherwise requires;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Filer having represented to the Commission as follows:

1. The Filer is a limited partnership that was formed under the Limited Partnerships Act (Ontario) in 2001. The general partner of the Filer is Bruce Power Inc., a corporation incorporated under the Business Corporations Act (Ontario).

2. The limited partners of the Filer are TransCanada Energy Investments Ltd., an indirect, wholly-owned subsidiary of TransCanada Corporation; BPC Generation Infrastructure Trust, an investment entity of OMERS Administration Corporation; two trusts constituted by the Power Workers Union; a trust constituted by the Society of Energy Professionals; and a trust through which a majority of the Filer's employees have invested in the Filer.

3. The head office of the Filer is located in Tiverton, Ontario.

4. The Filer is a private sector nuclear generator that operates a nuclear energy facility that is also located in Tiverton, Ontario. The nuclear energy facility produces up to 6,400 MW of Ontario's electricity which the Filer sells into the Ontario Independent Electricity System Operator (IESO) administered spot market (the IESO Market).

5. As a participant in the Ontario electricity market, Bruce Power is regulated by the Ontario Energy Board, the National Energy Board and IESO.

6. The Filer engages in the trading of Electricity Contracts. It conducts such trading activity on Non-Canadian Exchanges, and on Natural Gas Exchange Inc. located in Alberta. The Filer trades for its own account and does not act in an intermediary capacity.

7. When trading Electricity Contracts on, or through the facilities of, Non-Canadian Exchanges, the Filer utilizes the clearing and settlement services that are available from its prime clearing member, a US Registrant.

8. Before receiving the Previous Ruling, the Filer conducted its Electricity Contract trading activity in reliance upon exemptions granted to US Registrants (the US Registrant Exemptions) and exemptions granted to Non-Canadian Exchanges (the NCE Exemptions).

9. A US Registrant Exemption grants a US Registrant exemptions from the dealer registration requirements in the CFA and the trading restrictions in the CFA in connection with trades in Exchange-Traded Futures on Non-Canadian Exchanges that are conducted for its own account, and for the account of those clients of the US Registrant that are either Institutional Clients or Permitted Clients, as such terms are defined in the relevant US Registrant Exemption (in either case, a Permitted Client).

10. The Filer is a "permitted client", as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

11. US Registrant Exemptions granted since December 2012 have also included as a separate head of relief an exemption from the dealer registration requirements in the CFA and the trading restrictions in the CFA for Permitted Clients that trade in Exchange-Traded Futures on Non-Canadian Exchanges through the US Registrant that has obtained the US Registrant Exemption. The Filer understands that this separate head of relief was added to the US Registrant Exemptions to address the concern that the dealer registration exemption in section 32 (b) of the CFA refers to "a trade in a contract ... through an agent who is a registered dealer" but does not address the situation of "a trade in a contract ... through an agent who is relying on an exemption from the dealer registration requirement". US Registrant Exemptions granted prior to December 2012 did not include a separate head of relief for Permitted Clients, leaving it unclear whether this relief could be considered implicit in the previously granted US Registrant Exemptions.

12. The US Registrant Exemptions that the Filer has relied on for the purpose of conducting its Electricity Contract trading activity have included US Registrant Exemptions granted prior to December 2012 that do not include this separate head of relief for Permitted Clients. The Filer therefore sought and received the Previous Ruling to confirm that it could continue to conduct its Electricity Contract trading activity, including through US Registrants that have obtained US Registrant Exemptions prior to December 2012.

13. An NCE Exemption permits a Non-Canadian Exchange to offer direct electronic access to trading in Exchange-Traded Futures to prospective participants in Ontario (Ontario Participants) provided, among other things, that Ontario Participants are limited to persons who are either hedgers or registered dealers.

14. The Filer engages in the trading of Electricity Contracts for four principal reasons. First, it seeks to hedge the risk associated with the price that it will receive for the sale of its electricity to its retail commercial customers. Second, it seeks to lock-in physical flow spreads for power that it flows out of Ontario into various U.S. jurisdictions. Third, it engages in financial spread trading between Ontario and certain U.S. jurisdictions and seeks to hedge the commodity price risk exposure of its Ontario short and long positions. Finally, it seeks to trade for profit as well as arbitrage electricity prices in different geographic locations.

15. Prior to January 1, 2016, the price that the Filer received for the electricity that it produced from its Bruce B generating station had the potential to vary according to the spot price for electricity in the IESO Market. On December 3, 2015, the Filer entered into a long term power supply and refurbishment agreement with the IESO (the Power Supply Agreement) that resulted in a fixed price for all of the Filer's energy output effective January 1, 2016.

16. As a result of the Power Supply Agreement, it is not clear whether the Filer can continue to be considered a hedger for purposes of either the CFA or the NCE Exemptions. The Filer has previously received a notice from a Non-Canadian Exchange requiring that Ontario Participants (as defined in the NCE Exemption), including the Filer, certify that they are either a registered dealer or a hedger for purposes of their continued status as Direct Access Users of the Non-Canadian Exchange.

17. The Filer therefore sought the Previous Ruling for two reasons. First, to address the uncertainty associated with the Filer's ability to rely on a US Registrant Exemption for the purpose of trading Electricity Contracts on, or through the facilities of, Non-Canadian Exchanges through US Registrants in its capacity as a Permitted Client. Second, to allow the Filer to conduct Electricity Contract Direct Access Trades with a Non-Canadian Exchange that engages in such trading activity in reliance upon an NCE Exemption regardless of the Filer's status as a hedger.

18. Following its receipt of the Previous Ruling, the Filer determined that there is a relatively high correlation between the price of electricity and the price of natural gas and it therefore proposes to enter into Natural Gas Contracts for the purpose of hedging its Electricity Contract trading activity and, to a lesser extent, its physical flow trading activity.

19. Subject to the ruling requested, the Filer is not in default of securities or commodity futures legislation in any jurisdiction of Canada.

AND UPON the Commission being satisfied that it would not be prejudicial to the public interest to do so;

IT IS RULED, pursuant to section 78 of the CFA, that the Previous Ruling is varied to provide that the Filer is not subject to the dealer registration requirements in the CFA and the trading restrictions in the CFA in connection with trades in Electricity Contracts and/or Natural Gas Contracts on, or through the facilities of, Non-Canadian Exchanges that are conducted by the Filer as principal for its own account:

(a) through a US Registrant in accordance with the terms and conditions of the US Registrant Exemption that are applicable both to the US Registrant, and to the Filer in its capacity as a Permitted Client for purposes of the US Registrant Exemption; or

(b) as a Direct Access Trade in accordance with the terms and conditions of the NCE Exemption that are applicable both to the Non-Canadian Exchange, and to the Filer as though the Filer was a hedger for purposes of the NCE Exemption.

This Ruling will terminate on the earliest of:

(i) the expiry of any transition period as may be provided by law, after the effective date of the repeal of the CFA;

(ii) six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the CFA) or Ontario securities law (as defined in the OSA) that affects the dealer registration requirements in the CFA or the trading restrictions in the CFA; and

(iii) five years after the date of this Ruling.

DATED May 15, 2018

"Peter W. Currie"
"Poonam Puri"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission