Rule Change: Open

Overview

On 8 October 2019 the AEMC received a rule change request from the Hon Lily D’Ambrosio MP, Minister for Energy, Environment and Climate Change, Minister for Solar Homes (Victoria), to amend the National Electricity Rules (NER). 
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On 8 October 2019 the AEMC received a rule change request from the Hon Lily D’Ambrosio MP, Minister for Energy, Environment and Climate Change, Minister for Solar Homes (Victoria), to amend the National Electricity Rules (NER). 

The Minister sought a jurisdictional derogation for Victoria to allow the Australian Energy Market Operator (AEMO) to contract for emergency reserves under the reliability and emergency reserve trader (RERT) mechanism on a multi-year basis in that state. Specifically, the proposal was to enable AEMO to procure long-notice RERT contracts of up to three years’ duration. The Minister proposed that the derogation expire on 30 June 2025, on the basis that it is a response to a short-term reliability problem in Victoria. 

Draft determination

On 19 December 2019, the Commission published a draft determination to provide AEMO with the flexibility to enter into multi-year contracts under the RERT mechanism in Victoria. This is to help address the short to medium term reliability challenges facing that state. The time limited derogation is to end in June 2023 and apply only in Victoria.

The draft rule also contains robust checks and balances so that multi-year contracts are only entered into in circumstances where they would be a more cost-effective option. 

Under the draft rule, multi-year contracting will be subject to key changes made under the Enhancement to the RERT rule change. This means that the RERT principles that seek to minimise impacts on customer bills, keep RERT procurement costs under the Value of Customer Reliability and minimise market distortions will apply to decisions about whether to enter into multi-year contracts.

Under the draft rule, the trigger for procuring emergency reserves under the Enhancement to the RERT rule would apply to the first year before AEMO were to enter into a multi-year contract; this is an expected breach of the reliability standard. However, the trigger would not be required to be met in years two and three. Instead, under the draft rule, prior to entering into a multi-year contract, AEMO would need to consider what the appropriate term and structure of a Victorian reserve contract would be, including the appropriate volume of emergency reserves procured.

The existing RERT principles and Enhancement to the RERT rule out-of-market provisions, that both aim to reduce the risk of distortions to the wholesale market, will also apply to multi-year contracting.

The draft rule includes specific reporting requirements for multi-year contracting. These will require AEMO to make the following information public in quarterly RERT reports:

  • any contracts that have a term greater than 12 months
  • an explanation of why such contracts were entered into for a term greater than 12 months, including the basis on which AEMO considered the term and volume to be reasonably necessary to ensure the reliability of supply in the Victorian region 
  • the basis on which AEMO had regard to the RERT principles when entering into the multi-year contracts.

The draft rule specifies that the derogation will be in place for approximately three years, rather than five as proposed by the Victorian Government, and end on 30 June 2023.This provides AEMO flexibility to enter into multi-year contracts unit such time the Retailer Reliability Obligation (RRO) can next address reliability issues in Victoria.

Key dates:

Consistent with the timelines and requirements for a standard rule change process under the NEL, the key dates for stakeholder in this process are:
•    Submissions on the draft determination due: 30 January 2020.
•    Final rule published: 12 March 2020

Commencement of the rule change process

On 24 October 2019 the Commission published a consultation paper to facilitate consultation on the derogation proposal and to seek stakeholder submissions.

The consultation paper set out that the Commission considered that the derogation proposal should be subject to the expedited rule making process on the grounds that it considers the rule change request to be an urgent rule as defined in the National Electricity Law (NEL). The expedited process, which involves one round of consultation rather than two, would enable the Commission to make a final determination prior to summer. 

Objections to using the expedited rule change process

Under section 96(3) of the NEL, the AEMC must not make a Rule in accordance with the expedited process if the AEMC receives a written request not to do so, and the reasons set out in the request are not, in its opinion, misconceived or lacking in substance. 

Four objections were received in relation to the proposed derogation proceeding through the expedited process as an urgent rule.

The Commission considered the reasons outlined in the four objections submitted and came to a view that some of the reasons provided in the requests were not misconceived or lacking in substance. Consequently, the proposed rule change request is proceeding under the standard rule making process, rather than through an expedited process. On 14 November 2019, a notice was published advising that the proposed derogation will be processed under the standard rule making process.

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