On 5 May 2016 the AEMC published a final determination to not make a rule in relation to a rule request from Snowy Hydro Limited to change the nature of the obligation on generators and other participants to comply with dispatch instructions from the Australian Energy Market Operator (AEMO).

The rule change request proposed replacing the strict obligation to comply with dispatch instructions with an obligation based on “reasonable endeavours”.

The Commission decided not to make a Rule because:

• There is an appropriate level of regulatory certainty around the current strict obligation to comply with dispatch instructions. The AER has a level of discretion as to how it exercises its enforcement powers, and it clearly outlines how it exercises its discretion taking into account the realities of the market;

• If compliance with dispatch instructions were based on “reasonable endeavours”, as proposed by Snowy Hydro, what is required for compliance in any particular circumstance would be less clear for generators;

• If the strict obligation to comply with dispatch instructions is replaced with an obligation based on “reasonable endeavours”, over time generators are likely to be less diligent in complying with these instructions, particularly at times of high prices. In these circumstances, some capacity of generators which forms part of the optimal mix of generation for a five minute dispatch interval could potentially be displaced by capacity of generators who may not be part of this optimal mix;

• Over time, this could result in the need for AEMO to procure frequency control services to manage frequency fluctuations on the power system, which could increase prices for these services.  This could increase total system costs and ultimately wholesale electricity prices paid by customers; and

• The current strict obligation to comply with dispatch instructions is important for maintaining system security. The proposed Rule, if implemented, may adversely impact AEMO’s ability to maintain the NEM in a secure operating state.

The rule change process

On 17 September 2015 the AEMC initiated its assessment of the proposed rule with the publication of a consultation paper for stakeholder comment.

On 17 December 2015 the AEMC published its draft determination to not make a Rule to change the strict obligation on generators and other market participants to comply with dispatch instructions from AEMO.

On 24 March 2016 the AEMC extended the period of time to consider the rule change request under section 107 of the National Electricity Law. The publication of the final determination was extended because stakeholder submissions in the second round of consultation raised issues of sufficient complexity which required additional time to be considered.

The rule change request

 Snowy Hydro proposed to replace the strict obligation to comply with dispatch instructions under clause 4.9.8(a) of the National Electricity Rules (NER) with an obligation which means participants will not be in breach of the relevant rules if they either:

• use reasonable endeavours to comply with a dispatch instruction; or
• are not found by the AEMO to be non-conforming.

Snowy Hydro's rationale for the rule change request is primarily based on regulatory uncertainty around the strict obligation to comply with dispatch instructions under clause 4.9.8(a). It suggests that the current Rule is uncertain in its enforceability.

Snowy Hydro also suggests that the current Rule is unnecessary for the efficient and secure operation of the NEM, and imposes an unnecessary compliance burden on market participants.

Background

AEMO's central dispatch process maintains power system security by balancing the supply and demand of electricity throughout the day. Market participants, such as generators and scheduled loads, independently make bids and offers to consume or produce electricity at various prices in each five minute dispatch interval. The central dispatch process combines these bids and offers into a merit order, based on the optimal mix of generation for each five minute dispatch interval, which forms the basis of dispatch instructions issued to these market participants by AEMO. 

Under the current strict compliance obligation in clause 4.9.8(a) of the NER, a market participant is required to comply with a dispatch instruction unless to do so would, in that participant’s reasonable opinion, be a hazard to public safety or materially risk damaging equipment. The AER is responsible for monitoring and enforcing compliance with these obligations. AEMO also monitors the extent to which generators comply with dispatch targets for the efficient operation of the market.