On 11 November 2011 the AEMC has issued a final Determination on the Application and Operation of Administered Price Periods Rule change proposal.

This rule clarifies the operation of administered pricing in the NEM.  The rule removes ambiguity in relation to the application of administered pricing to ancillary services prices, and also removes the potential for administered pricing to be applied ahead of time.  These changes, as well as a number of other minor related amendments, improve the clarity of the rules thereby improving conditions for market operation and for participation in the NEM.

In its final Determination, the Commission decided to implement all the proposed decisions in the draft Determination as well as those proposed in the further consultation paper released on 22 September 2011. These included amendments to:

• make it clear that an Administered Price Period (APP) for Market Ancillary Services (MAS) commences at the dispatch interval following the dispatch interval in which a cumulative ancillary service price exceeds six times the Cumulative Price Threshold (CPT);
• clarify that all MAS prices are limited to the Administered Price Cap (APC) where an APP is notified for energy or any MAS;
• remove AEMO's discretion to extend an APP to the next trading day when the CPT is no longer breached;
• allow AEMO up to 25 business days to fulfill its obligations to include compensation awarded by the AEMC; and
• modify the calculation of price constraints in neighbouring regions under the application of the APC, Administered Floor Price (AFP), Market Price Cap (MPC), Market Floor Price (MFP), and during market suspension of a region.

Background

On 4 January 2011, AEMO submitted a Rule change proposal entitled ‘Application and operation of Administered Price Periods'.

AEMO submitted this rule change proposal to address a perceived ambiguity in the Rules with respect to the application and operation of APPs triggered by high ancillary service prices.

Specifically, the Rule change proposal proposed to:

• clarify that an APP, triggered by high ancillary service prices, should commence in the dispatch interval immediately following the dispatch interval in which the sum of the ancillary service prices in the previous 2016 dispatch intervals exceeds six times the CPT;
• clarify that all ancillary service prices, within a region, will be limited by the APC during an APP; 
• amend the discretionary provision which enables AEMO, in consultation with AER, to extend an APP into the next trading day (clause 3.14.2(c)(3)) by either:
  a) deleting clause 3.14.2(c)(3); or
  b) retaining the clause 3.14.2(c)(3) in an amended form where the decision to extend the APP is based on data in the pre-dispatch schedule;
• extend the time AEMO has to settle compensation for implementation of an APC, MPC or MFP (clause 3.15.10(c)); and 
• make non-material amendments to address inconsistent references to definitions in the Rules and to remove a redundant derogation by: including a reference to ‘dispatch prices' in clause 3.14.1(a); ensuring that only the term ‘ancillary service price' is used rather than ‘market ancillary service price'; and deleting clause 9.45.2 (which sets a unique APC for Tasmania) as it is considered to be a redundant APC derogation.

On 21 July 2011 the Commission released its draft Rule determination for the Application and Operation of Administered Price Periods Rule Change Proposal. In its draft Determination, the Commission decided to implement the proposed changes.

In addition, the Commission published a short further consultation paper on 23 September 2011 covering the specific suggestions, initially raised by the NGF, to correct and clarify the wording of the clauses, which act to constrain the price in neighbouring regions during the application of a MPC, MFP, APC or AFP in a region. A corresponding clarification was also proposed to the clause that covers pricing during Suspension of a region from the market.