Market Reviews: Completed

Review of Compensation Guidelines

Reference:
EPR0048
Reviewed by:
AEMC
Date completed:
08-Sep-2016
Overview

On 8 September 2016, the Australian Energy Market Commission (AEMC) published Final Amended Compensation Guidelines and a Final Decision. The Compensation Guidelines describe how compensation is to be determined if a claim is made by an eligible party following the application of an administered price cap or administered floor price.

Final decision on amendments to the Compensation Guidelines

On 8 September 2016, the Australian Energy Market Commission (AEMC) published Final Amended Compensation Guidelines and a Final Decision. The Compensation Guidelines describe how compensation is to be determined if a claim is made by an eligible party following the application of an administered price cap or administered floor price.
 
The Compensation Guidelines have been amended to reflect a rule change made on 4 February 2016. In addition to the consequential amendments required as a result of the final rule, other amendments have been made to the Compensation Guidelines, including:
  • amending the definition of opportunity cost;
  • amending the criteria for assessing whether opportunity costs can be claimed;
  • amending the methods of valuing opportunity costs; and
  • amending the frequency with which the Compensation Guidelines are reviewed.
In making these amendments to the Compensation Guidelines, the AEMC has had regard to the National Electricity Objective (NEO).
 
These amendments could impact the amount of compensation that would be able to be claimed by eligible participants under clause 3.14.6 of the National Electricity Rules (NER). Compensation is recovered from market customers.

The review process

On 3 March 2016, the AEMC published a Consultation Paper to seek initial stakeholder feedback on potential amendments to the Compensation Guidelines.
On 9 June 2016, the AEMC published draft amended Compensation Guidelines and an Explanatory Statement to facilitate public consultation in respect of amendments made to the Compensation Guidelines.

The Compensation Guidelines

The Compensation Guidelines support the operation of clause 3.14.6 of the NER. The Compensation Guidelines provide guidance to:
  • potential claimants and the Australian Energy Market Operator (AEMO) on the information required to be provided in support of a claim for compensation. Potential claimants include scheduled and non-scheduled generators, scheduled network service providers, scheduled loads and ancillary service providers; and
  • the AEMC when determining whether compensation should be paid and the amount of compensation payable.
On 4 February 2016, the Commission made a final rule to amend the compensation arrangements following the application of an administered price cap or administered floor price.
 
The changes made to the NER include transitional arrangements. These require the Compensation Guidelines to be amended to reflect the rule change, prior to the commencement of that rule on 29 September 2016. In amending the Compensation Guidelines, the AEMC was required to follow a set process, which included stakeholder consultation.

Background to compensation following administered pricing 

Administered price caps and administered floor prices help to reduce volatility and manage risks for market participants, but in some cases they can cause market participants to incur a loss. The NER provide for compensation in some circumstances where these losses occur. Historically, administered pricing events have occurred rarely.
 
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