On 19 December 2019 the Commission published a final determination and rule relating to the $5,000 compensation threshold which applies to directed and affected participants. 

The Commission’s final rule:

• amends the NER so that the $5,000 threshold for additional compensation claims by directed participants applies per direction, rather than per trading interval; and
• amends the NER so that the $5,000 threshold for both automatically calculated affected participant compensation and additional compensation claims/disputes by affected participants applies per intervention event, rather than per trading interval.

This represents a change in position since the publication of the draft determination and more preferable draft rule which made no change to the compensation threshold as it applied to affected participants. 

This was because the Commission did not consider it appropriate to change the threshold and so increase the quantum of affected participant compensation when, in the final report of its Investigation into intervention mechanisms in the NEM, it had recommended narrowing the circumstances in which affected participant compensation is payable. In particular, the Commission recommended that affected participant compensation should only be payable in connection with intervention events that trigger intervention pricing.

In response to the final report of the Commission’s Interventions investigation, the Australian Energy Market Operator (AEMO) submitted a rule change request to narrow the circumstances in which affected participant compensation is payable. This rule change request was progressed using an expedited process and a final determination and rule were published on 19 December 2019 (see further below).

This has enabled the Commission to resolve the question of how the $5,000 compensation threshold should apply to both directed participants and affected participants. In each case, the Commission has determined to apply the threshold on a per event basis, rather than on a per trading interval basis. 

This will help make sure that directed participants do not incur loss should they need to lodge a claim for additional compensation, and affected participants are made whole if they are dispatched differently due to an intervention in respect of which affected participant compensation is payable.

Background

When AEMO intervenes in the market by issuing a direction, it is required to compensate market participants who are directed to provide services. AEMO is also required to compensate those participants who are “affected”, or dispatched differently, due to the intervention so as to put them in the position they would have been in but for the intervention.

Compensation for directed participants is calculated automatically in the first instance. However, if a directed participant is still out of pocket, it can lodge a claim for additional compensation. Previously, a threshold of $5,000 per trading interval applied to additional compensation claims. This meant a directed participant could incur loss if its costs were below the threshold in a given trading interval, even if total costs incurred during the intervention exceeded the threshold.

The same threshold applies to the payment of affected participant compensation – both in the first instance, where compensation is calculated automatically, and in the event that an affected participant claims further compensation or disputes its liability to repay revenue to AEMO.

On 17 December 2018 AEMO submitted a rule change request to the Commission seeking to amend the threshold for participant compensation following market intervention. In particular, AEMO proposed that the threshold should apply per intervention event, rather than per trading interval.

On 4 April 2019 the AEMC published a consultation paper on the rule change request. Submissions in response to the consultation paper are available here, together with further information on the Interventions investigation.

On 15 August 2019 the Commission published a draft determination. Submissions in response to the draft determination are available below.

On 19 December 2019, the Commission published a final rule to amend the compensation threshold for directed and affected participants so that the threshold applies per intervention event and not per trading interval.

Related rule changes 
This rule is part of a package of three rules published by the Commission on 19 December 2019. The rules relate to the intervention pricing and compensation frameworks that are triggered when AEMO intervenes in the market. 

This package of rules limits the use of intervention pricing and the payment of affected participant compensation, and changes the compensation threshold which previously limited the payment of compensation to affected and directed participants. Together, these rules increase clarity and consistency, reduce market distortion and costs to consumers, and strike a better balance between the interests of market participants and consumers.

Given their inter-related nature, the three rules will all commence on 20 December 2019. However, if a direction is in effect at the time the rules commence, the old provisions of chapter 3 of the NER will continue to apply in respect of the AEMO intervention event corresponding with the direction until such time as the direction ends.

The interaction of these three rules is set out below.

The RRN test rule extends the RRN test to encompass the RERT in addition to directions, and clarifies the operation of the test. The revised RRN test sets out the circumstances when intervention pricing will apply and makes clear that intervention pricing will not apply when the purpose of the intervention is to obtain a service for which there is no relevant market price. For example, system strength directions will no longer trigger intervention pricing. This will reduce market distortion and costs to consumers. Further information is available here.

The affected participant compensation rule narrows the circumstances in which affected participant compensation is payable and provides that affected participant compensation will no longer be payable in connection with intervention events that do not trigger intervention pricing in accordance with the revised RRN test. For example, affected participant compensation will no longer be payable in connection with system strength directions. Further information is available here.

As noted above, the compensation threshold rule changes the compensation threshold which previously limited the payment of compensation to affected participants and to directed participants who lodged a claim for additional compensation. While the previous threshold applied on a per trading interval basis, the final rule amends the threshold so that it applies per event.  This means that, where affected participant compensation remains payable (namely, in connection with interventions that trigger intervention pricing), affected participants will not incur loss due to the application of a per trading interval threshold. For directed participants, the revised threshold will help make sure they do not incur loss if they lodge a claim for additional compensation. 

Publishing all three rules together facilitates a streamlined approach to implementation. As noted above, transitional provisions have been included in the RRN test rule so that, if a direction is in effect when the rules commence, the unamended version of chapter 3 will continue to apply in respect of the AEMO intervention event corresponding with the direction until that direction ends. 

As a result, if a direction is in effect at the time of commencement, the old (unamended) intervention pricing and compensation provisions in chapter 3 will continue to apply in respect of the AEMO intervention event corresponding with the direction until such time as the direction has ended. In this way, all three rules will commence at the same time but not in a way that creates operational complexity.