Rule Change: Open

Overview

On 15 August 2019 the Commission made a more preferable draft rule to amend a provision of the national electricity rules (NER) which determines whether AEMO should implement "intervention pricing" when it intervenes in the market by issuing a direction. The more preferable draft rule extends the application of the “regional reference node (RRN) test” to the reliability and emergency reserve trader (RERT) and clarifies the circumstances in which intervention pricing should and should not apply.
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On 15 August 2019 the Commission made a more preferable draft rule to amend a provision of the national electricity rules (NER) which determines whether AEMO should implement "intervention pricing" when it intervenes in the market by issuing a direction. The more preferable draft rule extends the application of the “regional reference node (RRN) test” to the reliability and emergency reserve trader (RERT) and clarifies the circumstances in which intervention pricing should and should not apply.

The Commission’s more preferable draft rule:

  • extends the application of the RRN test to the RERT. 
  • clarifies that intervention pricing should apply where an intervention responds to a region wide scarcity of a market traded commodity. 
  • clarifies the circumstances in which a localised deficiency of a market traded commodity should trigger intervention pricing. 
  • clarifies that intervention pricing should not apply in circumstances where the reason for the intervention is to obtain a service that is not traded in the market.
  • clarifies the approach to be adopted when multiple intervention events coincide.  

The Commission’s draft rule determination is to make a more preferable rule which seeks to create transparency, predictability and consistency for the market and remove any ambiguity for AEMO in determining how to apply the RRN test. It will help reduce costs to consumers and market distortion associated with AEMO interventions while preserving efficient prices and signals to investors.

Submissions on the draft rule determination closed on 26 September 2019 and can be found below.  

Extension

On 31 October 2019 the Commission extended the timeframe for publishing a final determination and rule until 19 December 2019. 

The extension will enable the AEMC to align the final determination with a related rule change request from AEMO on the Application of compensation in relation to AEMO interventions which was received on 19 September 2019 and is also due to be finalised on 19 December 2019 (under an expedited process). 

That rule change request seeks to narrow the circumstances in which compensation is payable to affected participants in connection with an AEMO intervention event. In particular, the 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”. 

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. To make this possible, the Commission has extended the timeframe for publishing the final RRN test rule. 

On 24 October 2019 the Commission announced that the timeframe for finalising the Threshold for participant compensation following market intervention rule had also been extended to 19 December 2019.

This means that the following three rules can be published at the same time, ensuring an integrated and streamlined approach:

  1. Application of the regional reference node test to the reliability and emergency reserve trader - dealing with when intervention pricing should apply
  2. Threshold for participant compensation following market intervention - dealing with whether the $5,000 compensation threshold should apply per trading interval or per intervention event
  3. Application of compensation in relation to AEMO interventions - dealing with when affected participant compensation should be payable.

Background – rule change request

Intervention pricing is a practice used by AEMO to minimise market distortion when it intervenes in the market by activating the RERT or issuing a direction. It does this by setting prices at the value which, in AEMO’s reasonable opinion, would have applied if the intervention had not occurred.

At present, intervention pricing is implemented every time the RERT is activated. However, when AEMO issues a direction, it has to apply the RRN test to determine whether to implement intervention pricing. The test essentially asks whether issuing a direction to a plant at the RRN would have avoided the need for the direction actually issued. 

For example, if directing a plant near Brisbane would not have solved a problem in far north Queensland, there is no value in preserving scarcity signals at the RRN. This is because the problem is localised and does not signal a region-wide scarcity for which market price signals should be preserved. In such cases, intervention pricing does not apply.

On 17 December 2018 the Australian Energy Market Operator submitted a rule change request to the Commission seeking to extend the application of the regional reference node test to the RERT and amend the wording of the test to improve clarity. 

On 4 April 2019, the AEMC initiated the rule making process for the rule change request.

The AEMC has made draft determinations with respect to this rule change request and the Threshold for participant compensation following market intervention rule change request. These draft determinations accompanied the AEMC's final report on its Investigation into intervention mechanisms in the NEM. 

The final report included a number of additional recommendations on changes to the intervention and compensation framework. These included a recommendation to narrow the circumstances in which affected participant compensation is payable. AEMO’s rule change request (Application of compensation in relation to AEMO interventions) responds to this recommendation.

Further information on the broader interventions investigation can be found here.

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