Rule Change: Open
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.
The AEMC invites submissions on the draft rule determination, including a more preferable draft rule, by 26 September 2019.
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 accompany the AEMC's final report on its Investigation into intervention mechanisms in the NEM. The final report includes a number of additional recommendations on changes to the intervention and compensation framework.
Further information on the broader investigation can be found here.