On 30 June 2011 the Australian Energy Market Commission (the Commission) gave notice under sections 102 and 103 of the NEL relating to the making of the Final Rule and Final Rule Determination for the National Electricity Amendment (Application of Dual Marginal Loss Factors) Rule 2011 No. 6 (the Rule as Made or Final Rule).

The Rule as Made amends clause 3.6.2 of the National Electricity Rules (the Rules), to allow AEMO to apply two volume weighted MLFs at those connection points where application of one MLF would not reflect the average of marginal losses for energy generation and consumption at that connection point.

The Commission considers that the Rule as made is likely to improve the efficiency of dispatch and settlement processes in the NEM, with improved operational, usage and investment outcomes for consumers of electricity.

The Rule as made contains a number of transitional arrangements relating to the development of procedures to clarify the processes for application and market implementation of dual MLFs.

Background

On 7 October 2010, AEMO submitted a Rule change to the Commission regarding the calculation and application of intra-regional MLFs.

The Rule change request sought to amend the Rules to allow AEMO to calculate and apply two separate volume weighted MLFs at specific connection points; one MLF calculated and applied to the energy generated at the connection point, another calculated and applied to the energy consumed at the connection point.

AEMO stated that this was necessary in order to address a situation that arises at specific connection points. At connection points where the quantities of annual energy generated and consumed approach parity, calculation of a single volume weighted MLF may result in an MLF which does not accurately represent average marginal losses for energy generated and consumed at that connection point.

AEMO asserted that such inaccurate MLFs may create inefficiencies in the process of dispatch and settlement of the market, with consequent impact on the efficiency of use, operation of and investment in electricity services.

On 14 April 2011, the Australian Energy Market Commission (Commission) gave notice under section 99 of the National Electricity Law (NEL) of the publication of the Draft Rule Determination, including a Draft Rule, for the Application of Dual Marginal Loss Factors Rule change.

The Commission determined to make a Draft Rule which incorporated the Proposed Rule made by the Australian Energy Market Operator (AEMO), with some minor amendments.