On 26 April 2013 the AEMC published a final determination on the Potential Generator Market Power rule change request. The AEMC recommended that energy ministers consider conferring on the Australian Energy Regulator a specific function to regularly report on whether the wholesale electricity market is operating efficiently. The AEMC determined to make no rule with respect to the Major Energy Users’ rule change request.

Background

On 23 November 2010, the MEU submitted a rule change request regarding the potential exercise of market power by generators in the NEM.

The MEU considered that during periods of high demand, some large generators have the ability and incentive to exercise market power to increase the wholesale electricity spot price. To address this perceived problem, the MEU proposed that:

• the Australian Energy Regulator should assess which generators in each NEM region have market power during periods of high demand and declare each of them to be a ‘dominant generator'; and
• when regional demand exceeds the level at which a generator has been declared to be a ‘dominant generator', the dominant generator would be required to offer all of its available capacity for dispatch at a price that does not exceed the administered price cap of $300/MWh.

On 14 April 2011, the AEMC published a notice of the commencement of consultation on the MEU's rule change request and a staff consultation paper regarding the request. Submissions on the rule change request and consultation paper closed on 26 May 2011.

On 22 September 2011, the AEMC published a directions paper in relation to the Potential Generator Market Power in the NEM rule change request. The paper contained the Commission's proposed definition of ‘substantial market power' in the context of the NEM. It also set out the Commission's proposed definition of the ‘exercise' of substantial market power. The paper explained why the Commission considered that ‘substantial market power' is the most appropriate term in the context of the NEM and has been adopted instead of ‘market power'.

The directions paper also explained the Commission's views on the relevant ‘market', why the Commission considered that it was not appropriate to address ‘tacit collusion' as part of this rule change request, and the Commission's response to stakeholder submissions regarding its power to make the MEU's proposed rule.

Submissions on the directions paper closed on 17 November 2011.

The Commission held a public forum in Adelaide in October 2011 to allow stakeholders to discuss the issues raised in the directions paper.

On 22 December 2011, the Commission published a technical paper by its consultants NERA Economic Consulting and Oakley Greenwood. At the public forum and in submissions, a number of stakeholders requested that the Commission publish a technical paper providing additional details on the approach to estimating long run marginal cost. Some stakeholders also requested that the Commission further explain other technical aspects of the Commission's proposed definition of substantial market power, such as the approach to calculating annual average prices and the test for determining the appropriate geographic market definition. The technical paper responded to these requests. Submissions on the technical paper closed on 2 February 2012.

On 7 June 2012, the AEMC published a draft determination on the MEU’s rule change request. The draft determination proposed to make no rule in respect of the rule change request. The Commission considered there was insufficient evidence of a problem to warrant making the rule change. Submissions on the draft determination closed on 20 July 2012.

In support of the draft determination, the AEMC published a report from NERA Economic Consulting that provided an analysis of NEM wholesale prices against estimates of long run marginal cost, and a report from the Competition Economists Group that provided an assessment of barriers to entry in NEM jurisdictions.

In response to the draft rule determination, the AEMC received 12 submissions, some of which included detailed information, from a range of stakeholders. The AEMC considered that stakeholders raised issues of sufficient complexity or difficulty so that it was necessary to extend the time to make the final rule determination. The extension of the time for making the final rule determination allowed the AEMC to undertake further analysis, including further modelling, to assess the issues raised by stakeholders. Having taken into account stakeholder’s submissions and the further analysis, the Commission considered whether the MEU’s proposed rule would or would be likely to contribute, or a more preferable rule would or would be likely to better contribute, to the achievement of the National Electricity Objective.

On 11 April 2013 the AEMC extended the period of time for publication of the final rule determination on the Potential Generator Market Power in the NEM rule change request to 26 April 2013.