The Chairman of the AEMC, John Tamblyn, today released a Draft Rule Determination approving a proposal by Snowy Hydro Ltd to abolish the Snowy Region of the National Electricity Market (NEM). The effect will be to include Snowy Hydro's Tumut plant in the New South Wales (NSW) Region and its Murray plant in the Victorian Region.

The Commission also has under consideration an alternative proposal from Macquarie Generation to change the Snowy Region boundary by creating two new NEM regions in northern Victoria and southern NSW.

The Snowy Region has been the source of economic distortions and inefficiencies since the commencement of the NEM in 1998. These "legacy issues" have involved material and enduring network congestion in the Snowy Region, a significant incidence of counter-price flows(Note 1), opportunities for strategic bidding by market participants and resulting distortions to the operation of the market.

The regional boundary Rule change proposal submitted by Snowy Hydro and Macquarie Generation represent potentially feasible long-term solutions to these problems which the Commission is assessing sequentially.

Based on its analysis and consideration of stakeholder submissions, the Commission has concluded that the Snowy Hydro boundary change proposal is likely to promote stronger competition in the NEM, leading to more efficient dispatch of generators, lower and more cost-reflective pricing and enhanced opportunities and incentives for inter-regional trading. In a more competitive market environment, these outcomes are likely to promote more efficient investment, production and consumption decisions in the long-term.

These anticipated results are consistent with the requirements of the NEM Objective which is directed to promoting improvements in the efficiency of investment in and operation and use of electricity services for the long-term interests of consumers. The Commission has therefore concluded that the Draft Rule that has been prepared to implement the Snowy Hydro boundary change proposal promotes the NEM Objective and satisfies the Rule-making test. Its Draft Rule Determination is now open for public comment until 9 March 2007.

This would be the first significant NEM region boundary change since the commencement of the NEM. The Draft Rule Determination sets out a number of implementation issues that will need to be addressed. The Commission is also seeking stakeholder comments on those matters.

_{Note (1): Inter-regional settlement residues:}

_{When generators export power to a higher priced region they do not receive the higher price paid by customers in the importing region; they receive the lower price that prevails in their generating region. This causes a surplus of funds to build up, known as inter-regional settlement residues (IRSRs), which are collected by NEMMCO. Units corresponding to shares of IRSRs are auctioned to market participants to help fund any hedging contract payment shortfalls that arise due to inter-regional price differences. On occasion, however, power flows from higher-priced regions to lower-priced regions. In this case, "negative settlement residues" may accrue between two regions. Since, under the current market arrangements, NEMMCO has a limited means for funding large negative residues, NEMMCO takes action to prevent the accumulation of negative settlement residues when they would otherwise arise.}

For information contact:
AEMC Chairman John Tamblyn (02) 8296 7819
AEMC Public Affairs, Prue Anderson (02) 8296 7800 or 0404 821 935