The Australian Energy Market Commission (AEMC) has made a rule, which is a more preferable rule, on the Short Term Trading Market (STTM) Settlement Surplus and Shortfall rule change request.

The amendment to the National Gas Rules (NGR) provides guidance to the Australian Energy Market Operator (AEMO) to develop STTM Procedures for the allocation of any settlement surplus or shortfall to STTM Trading Participants arising from all circumstances that are:

• within their reasonable control and for which they are responsible (such as, deviations); and

• beyond their reasonable control (such as, counteracting Market Operator Service (MOS) and contingency gas).

The Commission is satisfied that the more preferable rule is in the long term interests of consumers, and provides a clearer approach to efficiently allocating risk associated with STTM settlements. These provisions will be effective from 1 November 2014.

The key features of the rule are that it:

• explicitly includes the “causer pays” principle as a basis for allocating the settlement surplus and shortfall (arising from deviations) to those Trading Participants who caused the cost in the first instance;

• acknowledges that the settlement surplus and shortfall may arise from circumstances that are beyond the reasonable control of Trading Participants (arising from counteracting MOS and contingency gas), in which case they should be recovered proportionally from all market participants; and

• makes provision for the incorporation of a settlement surplus cap in the STTM Procedures, if required, to maintain incentives for Trading Participants to act in a manner that is consistent with their allocated gas market schedules.

The rule consists of two parts which have different commencement dates. The first part of the rule commences on 1 May 2014 and “undoes” a rule made in June 2013 (The National Gas Amendment (STTM Deviations and the Settlement Surplus and Shortfall) Rule 2013 No. 4). The second part of the rule commences on 1 November 2014 and “re-makes” the majority of the June 2013 rule change, with the addition of a new rule 464(2A).

The Commission assessed the rule change request as an urgent rule change under an expedited rule making process.

Background

AEMO submitted an urgent rule change request to the AEMC on 1 November 2013 that sought amendments to the NGR in relation to a principle that provides guidance to AEMO on the allocation of any settlement surplus or shortfall to STTM Trading Participants. The purpose of AEMO’s rule change request was to rectify unintended potential financial consequences for Trading Participants arising from the previously made (June 2013) rule which introduced the principle, and prior to that rule starting on 1 May 2014.

AEMO considered that the previously made (June 2013) rule, in its current form, is likely to lead to the disproportionate distribution of settlement shortfall charges to STTM Trading Participants where costs are not attributable to identifiable causes (such as those that may arise from counteracting MOS and contingency gas).

Additionally, AEMO sought a delay to the start date of the previously made (June 2013) rule, such that both it and its proposed rule (if made) commence on 1 November 2014.

Consultation process

On 20 February 2014, the AEMC published AEMO’s rule change request and the AEMC’s consultation paper to facilitate stakeholder feedback.

No stakeholder objections were received to the rule change request being considered as an urgent rule change by the due date of 6 March 2014.

Submissions on the AEMC’s consultation paper closed on 20 March 2014. Four submissions were received, which are available on the AEMC’s website.