Rule Change: Open
This rule change request from AEMO proposes that a new compensation framework be included in the National Electricity Rules so that market participants who incur loss during a market suspension event can be compensated.
On 17 May 2018 the AEMC published a consultation paper on the rule change request.
The consultation paper seeks stakeholder views on key issues, including:
- whether a compensation framework is required
- the effect of any new compensation framework on incentives facing participants
- how compensation should be calculated
- who should be eligible to claim or receive compensation
- what costs should be compensable
- how compensation and administration costs should be recovered
- how regulatory and administrative burdens should be minimised
Stakeholder submissions are due by 14 June 2018.
The AEMC received this rule change request from AEMO on 25 July 2017.
This rule change request follows the 13 day market suspension that occurred in South Australia in late 2016. During that event, prices were set in accordance with the ‘market suspension pricing schedule’ (based on average prices in the preceding four weeks).
AEMO notes that the absence of a compensation framework meant some participants were incentivised to minimise financial losses due to the application of the market suspension pricing schedule by withdrawing or reducing their availability for dispatch. As a result, AEMO was reliant on participant goodwill to manage system restoration and operation, or issuing directions so that participants who operated at a loss could recover their net costs through the directions compensation process.
AEMO considers that directions should be a last resort. They involve a resource intensive process and are not consistent with the principle in the National Electricity Rules that AEMO decision-making should be minimised to allow market participants the greatest amount of commercial freedom to decide how they will operate in the market.
In proposing a new compensation framework for market suspension events, AEMO’s aim is to remove the incentive for participants to await a direction in order to be sure that they can recover their costs.
This rule change request was lodged together with another request relating to pricing during market suspension. The latter was considered urgent and was progressed using expedited processes. On 10 October 2017 the AEMC made a final rule that simplified the process for setting prices if the spot market is suspended.