The proposal is to amend the NEMMCO derogation in Part 8 of Chapter 8A (Network Constraint Formulation) to manage negative settlement residues arising from network congestion in the Snow region.

Background

The Southern Generators (Loy Yang Marketing Management Company (LYMMCO), Southern Hydro, International Power, TRUenergy, NRG Flinders, Hydro Tasmania) and NEMMCO proposal on the Management of negative settlement residues in the Snowy Region is available below. The proposed Rule would amend the NEMMCO derogation in Part 8 of Chapter 8A (Network Constraint Formulation) to manage negative settlement residues arising from network congestion in the Snowy region.

This Rule proposal was received by NECA (the Commission’s predecessor) on 10 May 2005. Under the National Electricity Law (NEL) transitional provisions, consideration of this Rule proposal became the Commission’s responsibility on 1 July 2005. The proponents revised the original proposal to satisfy new procedural requirements for participant derogations under the recently amended NEL. The amended proposal was received by the Commission on 9 November 2005.

The Commission published a notice under section 95 of the NEL commencing initial consultation on the proposal Rule. Submissions closed on 10 February 2006.

On 30 March 2006, the Commission published a notice under section 107 of the NEL, extending the time period to prepare the draft Rule determination to 19 May 2006. Subsequently, the Commission further extended the time period to prepare the draft Rule determination to 16 June 2006.

The Commission used market modelling of the NEM to inform its assessment of the Southern Generators’ Rule change proposal. Published on 9 May 2006, the Commission’s Information Disclosure Statement sets out the analytical framework, modelling methodology, and assumptions for the information of interested parties. The modelling analysis undertaken and the results of the modelling exercise are included in the Commission’s draft Rule determination.

Modelling was only one input into the Commission’s decision, which was based on assessment of the proposal against the National Electricity Market Objective. The Commission also considered the likely effect of the Rule change proposal on the quality, security, and reliability of supply; and had regard to principles of good economic regulatory design.

On 6 June 2006, the Commission published its draft Rule determination and draft Rule on this proposal.

The Commission published a notice under section 99 of the NEL on 8 June 2006 commencing consultation on the draft Rule determination. Submissions in response to the draft Rule determination were due by 20 July 2006.

The Commission concurrently considered five Rule change proposals and one reference for Review that relate to various aspects of network congestion management. It was essential for this work to be co-ordinated by the Commission in order to deliver a comprehensive “Congestion Management Regime” for the market going forward. The Commission’s Congestion Management Program - Statement of Approach provided information and clarity about the way in which the Commission would address the five congestion related Rule change proposals and the Congestion Management Review in an integrated manner.

Other Rule change proposals that relate to congestion management and region boundaries and the Review can be found at:

• Ministerial Council for Energy proposal on the Process for Region Change
• Snowy Hydro Ltd proposal on Abolition of Snowy Region
• Macquarie Generation proposal on Alternative Snowy Region Boundary
• Snowy Hydro Ltd proposal on Management of negative settlement residues by re-orientation
• Congestion Management Review

On 10 August 2006, the Commission published a notice under section 107 of the NEL extending the date for the making of the final Rule determination to 31 August 2006. The Commission also considered an alternative, competing Rule change proposal from Snowy Hydro on the Snowy Hydro Limited Proposal (including non confidential attachments) (PDF). The revised release date for the final Rule determination on the Southern Generators’ Rule change proposal aligned the date with the release of the Commission’s draft Rule determination on Snowy Hydro’s re-orientation Rule change proposal. In the draft Rule determination on the Management of negative settlement residues in the Snowy region, the Commission acknowledged that it viewed the proposal from Snowy Hydro and this proposal from the Southern Generators and NEMMCO to be alternatives to address the issue of negative residues in the Snowy region. Given the complexity and difficulty involved in considering the alternative proposals together and, therefore, the need to align the Rule change processes, the Commission considered it to be in the public interest to extend the time period for the making of the final Rule determination.

The Commission gave notice on 31 August 2006 under section 107 of the NEL that the period of time for the making of the final Rule determination for this proposal was extended by one week to 7 September 2006. The Commission had to consider in its analysis of this proposal and the related re-orientation proposal from Snowy Hydro, modelling results which it had only recently received. This consideration was difficult yet necessary to ensure a complete and comprehensive final Rule determination was made and published. The Commission considered that it was in the interest of the public that the making of the final Rule determination be extended by an extra week to ensure these issues were addressed.

The Commission formally gave notice on 7 September 2006 under section 107 of the NEL that the time period for the making of the final Rule determination for this proposal had been extended by a further week to 14 September 2006, in conjunction with an extension to the making of the draft Rule determination for the related proposal from Snowy Hydro. The Commission had received in the week beginning 28 August 2006, further submissions regarding the potential impact on reliability of supply in Victoria. The Commission considered that a further one week extension to the making of the final determination was in the public interest as it gave interested parties the opportunity to comment and would allow the Commission to consider the submissions. The Commission requested that interested parties make submissions by 5pm, 7 September 2006.

On 14 September 2006, the Comminnion gave notice of the making of the final Rule determination for this proposal in accordance with section 102 of the NEL. The commission also gave notice under section 103 of the making of the National Electricity Amendement (Management of negative settlement residues in the Snowy Region) Rule 2006 No.14. All provisions commence opertion on 1 November 2006. The Commission determined, on balance, that this proposal better met the NEM objective and satisfied the Rule making test in comparison to the alternative proposal submitted by Snowy Hydro on re-orientation.