Rule Change: Open
Overview
On 3 April 2025, the Commission made a draft determination in response to a rule change request from Delta Electricity, which seeks to allow AEMO to accept cash as credit support. The draft rule would increase optionality and flexibility for participants to provide credit support in the National Electricity Market (NEM).
We are seeking stakeholder feedback to the draft determination. Stakeholder submissions are due by 15 May 2025.
The draft rule would increase optionality and flexibility in the credit support arrangements
In the NEM, participants are required to provide credit support to AEMO if they are a net debtor. This allows AEMO to manage financial risks in the event that a participant defaults and is unable to pay any outstanding settlement. Currently, only bank guarantees and letters of credit in forms acceptable to AEMO can be provided as credit support.
The draft rule would seek to provide additional options and flexibility for participants to provide credit support, by allowing:
- cash to be used as credit support up to a limit of $5 million for each market participant
- surety bonds to be used as credit support
- credit support from a broader pool of credit support providers.
The increased optionality and flexibility would reduce credit support costs for participants, in addition to reducing risks of default. We consider that small retailers are likely to benefit most from the draft rule, as they typically have higher financing costs and lower access to credit support.
The draft rule seeks to mitigate and manage risks
Allowing cash to be provided as credit support would introduce potential clawback and insolvency-related risks, which we consider would be low and outweighed by the benefits. The draft rule seeks to reduce and manage these risks by using several layers of protection, including:
- limiting the amount of cash each participant can provide as credit support to $5 million
- avoiding financial exposure to AEMO by allocating any costs to participants receiving net payments
- granting AEMO a first ranking charge over cash, and providing set off rights if AEMO were to use set off arrangements.
Additionally, allowing surety bonds could increase risks of temporary settlement shortfalls in the event a surety bond is called upon. Under the current arrangements, any delayed payments are distributed at the end of financial year. The draft rule seeks to minimise any such impacts by enabling a more timely distribution of any delayed payments.