Rule changes: Open

On 22 September 2011, the AEMC published a Directions Paper in relation to the Potential Generator Market Power in the NEM Rule change request. The Directions Paper sets out the Commission’s proposed approach to the definition of market power in the context of the NEM. On 22 December 2011, the AEMC published a technical paper prepared by its consultants providing further details regarding the approach to estimating long run marginal cost and other technical matters that were referred to in the directions paper. View more

Directions Paper and Technical Paper

On 22 September 2011, the AEMC published a Directions Paper in relation to the Potential Generator Market Power in the NEM Rule change request that was submitted by the Major Energy Users Inc. (MEU). The Directions Paper sets out the Commission's proposed approach to the definition of market power in the context of the NEM.

The paper contains the Commission's proposed definition of ‘substantial market power' in the context of the NEM. It also sets out the Commission's proposed definition of the ‘exercise' of substantial market power. The paper explains why the Commission considers that ‘substantial market power' is the most appropriate term in the context of the NEM and has been adopted instead of ‘market power'.

The Directions Paper also explains the Commission's views on the relevant ‘market', why the Commission considers that it is not appropriate to address ‘tacit collusion' as part of this Rule change, and the Commission's response to stakeholder submissions regarding its power to make the MEU's proposed Rule.

Submissions on the Directions Paper closed on 17 November 2011.

The Commission held a public forum in Adelaide in October 2011 to allow stakeholders to discuss the issues raised in the Directions Paper.

On 22 December 2011, the Commission published a technical paper by its consultants NERA Economic Consulting and Oakley Greenwood.  At the public forum and in submissions, a number of stakeholders requested that the Commission publish a technical paper providing additional details on the approach to estimating long run marginal cost.  Some stakeholders also requested that the Commission further explain other technical aspects of the Commission's proposed definition of substantial market power, such as the approach to calculating annual average prices and the test for determining the appropriate geographic market definition.  The technical paper responds to these requests.  Comments on the technical paper may be made by 2 February 2012.

Background

On 23 November 2010, the MEU submitted a Rule change request regarding the potential exercise of market power by generators in the NEM.

The MEU considers that during periods of high demand, some large generators have the ability and incentive to exercise market power to increase the wholesale electricity spot price. To address this perceived problem, the MEU proposes that:

• the Australian Energy Regulator should assess which generators in each NEM region have market power during periods of high demand and declare each of them to be a ‘dominant generator'; and
• when regional demand exceeds the level at which a generator has been declared to be a ‘dominant generator', the dominant generator would be required to offer all of its available capacity for dispatch at a price that does not exceed the administered price cap of $300/MWh.

On 14 April 2011, the AEMC published a notice of the commencement of consultation on the MEU's Rule change request and a staff Consultation Paper regarding the request. Submissions on the Rule change request and Consultation Paper closed on 26 May 2011.

On 14 April 2011, the AEMC also gave notice under section 107 of the National Electricity Law that it has extended the period of time for making the draft Rule determination until 30 April 2012.

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