The National Electricity Amendment (NEM Reliability Settings: VoLL, CPT and Future Reliability Review) Rule 2009 No. 13 commenced operation on 28 May 2009.  This Rule was made by the Commission in response to a Rule change proposed by the AEMC Reliability Panel.  The main impacts of the Rule were that:

1. the term “Value of Lost Load (VoLL)” was renamed the “Market Price Cap”;
2. the Market Price Cap is to increase from $10,000/MWh to $12,500/MWh, with effect from 1 July 2010;
3. the Cumulative Price Threshold is to increase from $150,000 to $187,500, also with effect from 1 July 2010; and

4. the annual review of VoLL was replaced with an integrated review of the reliability standard and settings to take place every two years, with two years’ notice of any change.

Background

On 18 December 2008, the AEMC Reliability Panel lodged a Rule change proposal relating to the Value of Lost Load (VoLL), the Cumulative Price Threshold (CPT) and the future review of the reliability standard and settings.

Specifically, the Reliability Panel's Rule change proposal sought to:

• Increase the level of VoLL from the existing level of $10,000/MWh to $12,500/MWh, to be effective from 1 July 2010;
• Define CPT in the Rules as 15 times the prevailing level of VoLL;
• Change the term "Value of Lost Load (VoLL)" to "Market Price Limit (MPL)"; and
• Replace the current annual review of VoLL with a review of the reliability standard and settings (i.e. the reliability standard, VoLL, CPT and the market floor price) which is to take place every two years with two years' notice of any change.

On 22 January 2009, the Commission published a notice under section 95 of the National Electricity Law (NEL) advising of its intention to commence the Rule change process and fast track this Rule change proposal under section 96A of the NEL.

Under section 96A of the NEL, once a fast tracked Rule making process has been approved by the Commission, the first round of consultation and option for a public hearing is bypassed. Following the publication of a section 95 notice initiating the Rule change process, the Commission has five weeks to publish a draft Rule determination. Once the draft Rule determination has been published, the Rule making process will continue as normal with a round of consultation on the draft Rule determination and the publication of a final Rule determination.

This Rule change proposal consolidates the second and third Rule change packages that were foreshadowed by the Reliability Panel in their Comprehensive Reliability Review (CRR), which was published in December 2007. The Reliability Panel also published an Exposure Draft in September 2008 which consolidated these packages into a single Rule change package. The Reliability Panel sought submissions from the public on the Exposure Draft and Proposed Rule.

In support of its Rule change proposal, the Reliability Panel provided the Commission with a risk assessment report from Concept Economics regarding raising VoLL and the CPT.

On 26 February 2009, the Commission gave notice under section 99 of the NEL advising of the making of the draft Rule determination and draft Rule on the Reliability Panel's Rule change proposal.

The draft Rule determination directly adopted two of the Reliability Panel's proposed changes. These were:

• to increase the level of VoLL from $10,000/MWh to $12,500/MWh, with effect from 1 July 2010; and
• to establish an integrated review of the reliability standard and settings, which is to take place every two years with two years' notice of any change.

The substantive differences between the Rule change proposal and the draft Rule as determined by the Commission related to the other two elements of the Reliability Panel's proposed Rule change. These were:

• that the CPT should be set at an absolute level of $187,500 with effect from 1 July 2010, and not be defined as a value relative to that of VoLL, as the Reliability Panel had proposed; and
• that VoLL would be renamed the "Maximum Market Price", rather than the "Market Price Limit" as the Reliability Panel had proposed (and that the "Market Floor Price" would consequently be renamed the "Minimum Market Price" to ensure consistency across all related terms).

As the different definition of the CPT represented a relatively material change to the proposal, the Commission exercised its power under sections 91A and 99 of the NEL to make a more preferable draft Rule.

The consultation on the draft determination closed on 6 March 2009.  Two submissions were received by the Commission.

No public hearing was held for this Rule change proposal.

On 28 May 2009, the Commission gave notice under sections 102 and 103 of the NEL advising of the making of the National Electricity Amendment (NEM Reliability Settings: VoLL, CPT and Future Reliability Review) Rule No. 13 and the related Rule determination in response to the Reliability Panel's Rule change proposal.

The Rule as made directly adopted two of the Reliability Panel's proposed changes, consistent with the draft determination. These were:

• to increase the level of VoLL from $10,000/MWh to $12,500/MWh, with effect from 1 July 2010; and
• to establish an integrated review of the reliability standard and settings, which is to take place every two years with two years' notice of any change.

The substantive differences between the Rule change proposal and the Rule as made by the Commission related to the other two elements of the Reliability Panel's proposed Rule change. These were:

• that the CPT should be set at an absolute level of $187,500 with effect from 1 July 2010, and not be defined as a value relative to that of VoLL, as the Reliability Panel had proposed; and
• that VoLL would be renamed the "Maximum Price Cap", rather than the "Market Price Limit" as the Reliability Panel had proposed.

The final Rule differed from the draft Rule in that the Commission had previously advocated that VoLL should be renamed the "Maximum Market Price", rather than the "Market Price Limit" (and that the "Market Floor Price" should consequently be renamed the "Minimum Market Price").

As the different definition of the CPT is a relatively material change to the proposal, the Commission exercised its power under section 91A of the NEL to make a more preferable Rule.  In the Commission's view, while the original Rule change proposal would have represented an improvement on the current arrangements when assessed against the National Electricity Objective (NEO), the Commission's more preferable Rule is likely to contribute to the achievement of the NEO to a greater extent than the proposed Rule.

The Commission also considered an additional, related issue not included in the Rule change proposal. Under the Rules, the AER must prepare and publish a report where spot prices exceed $5,000/MWh, and this threshold may be, at least implicitly, related to the level of VoLL. However, the Commission concluded that no changes to the Rules were required in this respect.

The Rule commenced operation on 28 May 2009, although, as noted above, some key provisions do not effect until 1 July 2010.