Rule Change: Completed
The Rule change proposal would establish a mechanism to cap the spot price in a region when triggered by certain physical events. Arrangements for capping the spot price would be similar to the Administered Price Cap.
In its final Rule determination, the Commission disagreed with the Rule change proposal and did not make the Rule.
The Rule change proposal would establish the concept of a Contingency Administered Price Period (CAPP) in the Rules. A CAPP could be triggered by a non-credible contingency event that has a material impact on dispatch. For the duration of a CAPP, the spot price would be capped at the same level as applies for Administered Price Periods (currently $300/MWh).
In its proposal, the NGF contended that non-credible contingency events create significant financial risk for generators. Following a contingency event a generator's dispatch can be constrained to the point that the generator can no longer cover its forward contract positions. This can lead to significant financial losses. Capping the spot price at $300 would limit the magnitude of these losses. The NGF contended that financial risk from non-credible contingency events can be difficult to manage because such events are rare and unpredictable.
This Rule change proposal effects all Market Participants.
In its final Rule determination, the Commission considered that the Rule change proposal would be unlikely to contribute to the achievement of the National Electricity Objective. The Commission considered that the Rule change proposal would be likely to:
- distort investment signals creating an inefficient bias towards investment in baseload generation. This would likely lead to a sub-optimal generation mix in the long term;
- reduce incentives for peaking generators and demand side participation to efficiently respond following a non-credible contingency event. This would reduce the efficiency of dispatch and pricing, and could threaten system security at times of supply scarcity;
- increase demand from participants for compensation in relation to CAPPs and NEMMCO directions. This would reduce the efficiency of both wholesale and retail prices; and
- place additional responsibilities on NEMMCO at a time when NEMMCO's control room should be focussed on managing power system security. This would increase the probability of errors being made by NEMMCO's control room, thus reducing the efficiency of operations and risking system security.
The Commission disagreed with the Rule change proposal, and did not make a Rule.