A transmission loop will be formed in the National Electricity Market (NEM) when Project EnergyConnect Stage 2 (PEC) becomes operational. The Australian Energy Market Operator (AEMO) has submitted a rule change request proposing a new method for allocating negative inter-regional settlements residue (IRSR) in transmission loops. The rule change is considering the appropriate market arrangements for the transmission loop to support the realisation of PEC’s expected consumer benefits.

On 20 March 2025, the AEMC extended the date for the final determination to 25 September 2025. An extension was required because there was a material change in circumstances.    

Specifically, stakeholder submissions to the draft determination raised concerns regarding a material financial risk to TNSPs due to negative IRSR in transmission loops, and flow-on impacts to consumers. TNSPs consider the draft rule would not sufficiently mitigate this risk.

The Commission has decided to extend the rule change to allow for exploration of other policy options, including  the ‘netting off’ proposal discussed in the consultation paper that could more effectively address the risks to TNSPs and consumers.

Next steps

The project team is establishing a technical working group (TWG) for this project. Please contact the project leader if you are interested in attending and we will register you.  

We  will be publishing a short paper and proposed rule drafting for stakeholder feedback and written submissions in June 2025. This feedback will inform the final determination.

The final determination will be published on 25 September 2025. We understand that this timing would allow the outcomes of AEMC’s decision to be put in place by AEMO ahead of the PEC loop going ‘live’.  

Background  – the AEMC made a draft determination in December 2025

Instead of the current approach, which allocates IRSR to the importing region, the draft rule proposed:

• Sharing negative IRSR amongst all looped regions (New South Wales, South Australia, and Victoria) in proportion to regional demand. Regional demand would be calculated as each looped region’s total annual electricity consumption over the prior year. This would apply regardless of whether net loop IRSR is positive or negative.  
• Not requiring AEMO to impose ‘clamping’ constraints when the net IRSR for the loop is positive – to support the efficient operation of the loop.
• Not making changes to the allocation of positive IRSR through settlements residue auction (SRA) arrangements. However, the Commission considered that there is a case to review whether the current SRA arrangements are in the long-term interests of consumers because IRSR will become more frequent in transmission loops and exacerbate issues with negative IRSR.