Rule Change: Open

Overview

This rule change request from the Australian Energy Market Operator (AEMO) seeks to narrow the circumstances in which compensation is payable in connection with AEMO intervention events.
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This rule change request from the Australian Energy Market Operator (AEMO) seeks to narrow the circumstances in which compensation is payable in connection with AEMO intervention events. The rule change request proposes that compensation no longer be payable to participants who are affected by an intervention (i.e. dispatched differently) if that intervention does not trigger “intervention pricing” under the revised “regional reference node test”. 

If the rule is made as proposed, the practical effect will be that affected participant compensation is no longer payable if the intervention is to obtain a security service that is not traded in the market (e.g. system strength). 

The AEMO rule change request responds to a recommendation made by the Commission in the final report of its Investigation into intervention mechanisms in the NEM. The Commission recommended that affected participant compensation should not be payable in certain circumstances (namely, in connection with security related interventions). This would create consistency between constraints and security related interventions and reduce costs to consumers. This is the subject of this rule change request.

Consultation paper

On 24 October 2019 the AEMC published a consultation paper seeking stakeholder input on the proposal to narrow the circumstances in which compensation is payable in connection with AEMO intervention events. 

Submissions to the rule change request are due by 21 November 2019. 

Expedited process

The AEMC considers this rule change request to be non-controversial on the basis that it is unlikely to have a significant effect on the national electricity market (consistent with s87 of the National Electricity Law - NEL). 

The AEMC proposes to assess the rule change request under the expedited rule making process provided we do not receive a valid written request not to do so. To be valid, a request must set out the reasons why the rule change request will have a significant impact on the national electricity market. It must be lodged online with the Commission by 7 November 2019.

Under an expedited rule making process, a final rule determination must be made within eight weeks of the initiation of the process.

Key dates are:

  • Commencement of this rule change process:  24 October 2019
  • Objections to use of expedited process to be received by 7 November 2019
  • Submissions to the consultation paper to be received by  21 November 2019
  • Publication of final determination:  19 December 2019.

Background

When AEMO intervenes in the market by issuing a direction, it is required to compensate market participants who are directed to provide services. AEMO is also required to compensate certain participants who are “affected”, or dispatched differently, due to AEMO issuing a direction or activating the reliability and emergency reserve trader (RERT). Such compensation is designed to put participants in the position they would have been in but for the intervention. 

The Commission’s Investigation into intervention mechanisms in the NEM considered whether affected participant compensation should be payable in connection with security related interventions. The Commission noted that no such compensation is payable when AEMO uses a constraint, rather than an intervention, to maintain system security. It also noted that, where the intervention responds to a security issue, the dispatch targets used to calculate affected participant compensation (and intervention pricing) are not feasible, meaning they would never be realised in practice. Finally, the Commission noted that participants can optimise their position with respect to affected participant compensation, and this can impose higher than necessary costs on consumers.

Accordingly, the Commission recommended that AEMO submit a rule change request to narrow the circumstances in which affected participant compensation is payable. In particular, the Commission recommended that such compensation only be payable where an intervention triggers “intervention pricing” under the revised “regional reference node test” (RRN test).

The RRN test is currently used by AEMO to determine when intervention pricing should be implemented in connection with a direction. Intervention pricing is a practice designed to minimise market distortion when AEMO intervenes in the market. 

In December 2018 AEMO submitted a rule change request to extend the RRN test so it applies to the RERT in addition to directions. AEMO also proposed wording changes to clarify the test, which has proved difficult to apply in practice.  

On 15 August 2019 the Commission published a draft determination and more preferable draft rule. This extended the RRN test to encompass the RERT and clarified the circumstances in which intervention pricing should and should not apply. The new approach will provide clarity and consistency across the NEM, whereas the existing test would not deliver consistent pricing outcomes across the NEM. 

If the final RRN test rule reflects the draft, intervention pricing will no longer apply in respect of security related interventions (e.g. to obtain system strength or voltage control). The combined effect of the RRN test rule and this rule change request regarding affected participant compensation will be that security related interventions no longer trigger intervention pricing and no longer create an entitlement to affected participant compensation.

Given the relationship between the two rules, AEMO has requested that this compensation rule commence no later than the revised RRN test final rule. This will enable streamlined implementation of changes to the intervention and compensation frameworks.

More information about the RRN test rule change is available here.

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