Rule Change: Completed
On 9 July 2020, the Commission published a final determination and rule which delays the commencement of the five minute settlement rule and global settlement rule by 3 months, so that they commence on 1 October 2021. A three month delay balances the capacity constraints placed on the industry by COVID-19 against the additional costs and deferred benefits associated with a longer delay to the commencement of these rules.
The rule change request
Given the impact the COVID-19 pandemic is having on the economy and the energy industry, and the industry-wide effort to implement the 5MS and GS rules, AEMO submitted a rule change request seeking to delay the start date of the 5MS and GS rules by 12 months. AEMO proposed that the delay would allow industry participants to focus on the ongoing supply of energy as an essential service, and support for customers, as they deal with the broader economic and social impacts of COVID-19.
The final determination and rule
The Commission noted the short-term impact of COVID-19 on industry capabilities to implement 5MS and GS and meet business responsibilities to supply energy and support customers. This has slowed or delayed participants’ implementation of their 5MS and GS programs. Participants have diverted resources and management focus away from implementing 5MS and GS and towards meeting business-as-usual activities and new regulatory expectations, including the support of pricing relief packages for customers impacted financially by COVID-19.
The rule change proposed a 12 month delay to the commencement of 5MS and GS and the Commission found that this period of time was too long. The impact of COVID-19 on industry capabilities was only in the order of two to three months and participants have so far had a number of years to implement each of the 5MS and GS reforms.
The Commission noted that the proposed 12 month delay would create cash flow benefits for participants by deferring 5MS and GS implementation expenditure, however implementation costs would increase and overall industry cash flows are expected to be worse than not delaying 5MS and GS. A 12 month delay would also defer the realisation of benefits associated with the 5MS and GS rules.
A shorter delay of three months:
- recognises the short-term impact of COVID-19 on participant capabilities
- does not significantly increase or decrease 5MS and GS implementation costs
- does not materially reduce the broader market and consumer benefits from the rules.
The Commission noted that COVID-19 has already had a significant impact on the Australian economy and an increase in customer debt levels has the potential to threaten the financial viability of smaller retailers. The Commission did not consider that a 12 month delay to the major industry reforms of 5MS and GS would be an efficient or targeted way to address specific cash flow issues that a sub-set of participants may have. It would not materially assist in avoiding potential financial contagion in the industry caused by COVID-19. Other measures may be better at addressing such issues.
The Commission notes that this decision has been made under uncertainty relating to the financial and health impacts of COVID-19.
Deloitte was engaged by the Commission to assist with the analysis of the impact on COVID-19 and a delay on participant cashflows and capabilities. Deloitte’s report can be found here.
Commencement dates for the rule
The rule delays the commencement of some, but not all, aspects of the 5MS rule and the GS rule, as outlined below:
- the commencement date for the 5MS and GS rules is delayed by three months
- no delay for the provisions of all new and replacement meters to record and provide 5-minute data
- the date by which AEMO is to publish UFE reports and guidelines is delayed by three months.
Background on the rule change process
On 9 April 2020, the Australian Energy Market Operator (AEMO) submitted to the Commission proposing an urgent rule be made to delay the commencement of the Five minute settlement (5MS) and Global settlement and market reconciliation (GS) rule changes by 12 months.
On 14 May 2020 the AEMC published a consultation paper seeking feedback on the proposed rule change.
The Commission determined that the rule change be considered under an expedited rule change process as it was a request for an urgent rule. The Commission received one objection to the use of an expedited rule change process. The objection was assessed and the Commission decided in accordance with the NEL that the rule change should continue under the expedited rule change process.
On 21 May 2020, the AEMC held a briefing for all interested stakeholders. The slides from this briefing are attached here.
The AEMC received 48 stakeholder submissions to the consultation paper for this rule change request.