On 27 July 2011, AEMO submitted a Rule change request entitled ‘New Prudential Standard and Framework in the NEM'.

AEMO submitted this rule change proposal to give effect to the first set of conclusions from its recently concluded Energy Market Prudential Readiness Review. Specifically, the Rule change request proposes to:

  • Remove references to the ‘reasonable worst case' within the prudential requirements;
  • Replace ‘reasonable worst case' with a new definition for a Prudential Standard, defining it as a 2% probability of incurring a loss or shortfall in the event of participant default;
  • Modify various aspects of its calculation process, including:

    a) use of individual load profiles and seasonal adjustments in calculating participant prudential obligations
    b) removal of the option for a Reduced Maximum Credit Limit
    c) modification of the methodology used to calculate the Maximum Credit Limit and Prudential Margin

The Commission published a draft determination on 12 April 2012 to make the rule as proposed by the proponent, with some clarifying amendments.

AEMO made a submission to the draft determination, raising an issue related to the netting of positive and negative amounts in the calculation of the Prudential Margin. The AEMC now invites submissions in relation to the proposals put forward in AEMO’s paper, by 21 September 2012.