Market Reviews: Completed

The National Electricity Amendment (Compensation Arrangements under Administered Pricing) Rule 2008 No. 17 commenced on 1 January 2009 and imposes a requirement on the Commission to develop and publish compensation guidelines (clause 3.14.6(c)).

Background

The National Electricity Amendment (Compensation Arrangements under Administered Pricing) Rule 2008 No. 17 commenced on 1 January 2009 and imposes a requirement on the Commission to develop and publish compensation guidelines (clause 3.14.6(c)). Scheduled generators, scheduled network service providers and other market participants may apply for compensation as a consequence of the application of an administered price cap, market price cap, market floor price or administered floor price event. The guidelines play an important role in the decision-making process on compensation.

The compensation guidelines must be developed in accordance with the transmission consultation procedures (rule 6A.20) and the first compensation guidelines must be published by 30 June 2009 (clause 3.14.6(e)).

The Rules require that the compensation guidelines:

• identify the objectives for the payment of compensation;
• require that the amount of compensation be based on costs directly incurred by the claimant and the value of any opportunities foregone;
• outline the methodology to be used to calculate the amount of any compensation payable; and
• set out the information requirements AEMO and the claimant must provide.

The purpose of the guidelines is to:

• be applied by a three member panel in its role required under clause 3.14.6(l) of the Rules in providing advice to the Commission on compensation;
• be applied by the Commission when determining whether compensation should be paid and the amount of compensation payable under the Rules, unless it is satisfied that there is a compelling reason not to do so;
• describe the methodology for calculating compensation, including what direct and opportunity costs will be considered in claims; and
• provide guidance to potential claimants and AEMO on the information to be provided in support of a claim for compensation.

Clause 3.14.6(c) of the Rules require the proposed guidelines to be published in accordance with the transmission consultation procedures. The transmission consultation procedures require the Commission to:

• publish the proposed guidelines with an accompanying explanatory statement and an invitation for written submissions;
• allow no less than 30 business days for the making of submissions; and
• within 80 business days of the proposed guidelines being published, publish its final decision and notice of the making of the final decision.

Clause 3.14.6(d) of the Rules also requires the Commission to develop the compensation guidelines with the assistance of a three member panel established from the pool of persons available for selection to a dispute resolution panel.

On 5 March 2009, the Commission published its proposed compensation guidelines and explanatory statement, and invited submissions on the proposed guidelines by 21 April 2009.

On 30 June 2009, the Commission published the guidelines for The Determination of Compensation Following the Application of the Administered Price Cap, Market Price Cap, Market Floor Price or Administered Floor Price, together with a supporting decision document.

In accordance with the transmission consultation procedures, the final decision on the guidelines explains the Commission's reasoning for any changes to the proposed guidelines in light of the substantive comments raised by the three member panel's report, submissions and any issues identified by the Commission.

The Commission has separately published the guidelines for The Determination of Compensation Following the Application of the Administered Price Cap, Market Price Cap, Market Floor Price or Administered Floor Price. The Commission considers these guidelines to be practical and informative, yet sufficiently flexible for all participants in the compensation process.

The Commission intends to review these guidelines every three years, or at an earlier time in light of market circumstances.

On 2 July 2009, in accordance with rule 6A.20 of the Rules, the Commission gave notice of the publication of the Guidelines for the Determination of Compensation Following the Application of the Administered Price Cap, Market Price Cap, Market Floor Price or Administered Floor Price and its final decision on these guidelines.