This section provides an overview to the Congestion Management Review and the related work stream on extending the expiry date of the participant derogation in Part 8 of Chapter 8A of the National Electricity Rules (Rules). The overview on the latter is presented at the end of the section.

Commencement of the Congestion Management Review

On 5 October 2005, the MCE directed the Commission to review congestion management in the National Electricity Market (NEM).

The Review is to consider the requirement for, and scope of, enhanced trading arrangements in relation to congestion management and pricing in the National Electricity Market. The original timetable requested that the Commission deliver to the MCE a final report within nine months of receiving the terms of reference.

On 25 October 2005, the Commission wrote to the MCE requesting that the specified period in the terms of reference for the conduct of the review be modified to allow the review to commence in March 2006. This and other communications with the MCE are available [under “terms of reference and statement of approach” section].

Congestion Management Program – Statement of Approach – June 2006 The Commission concurrently is considering five Rule change proposals and one reference for Review that relate to various aspects of network congestion management in the NEM. It is essential that this work is co-ordinated by the Commission to deliver a comprehensive “Congestion Management Regime” for the market going forward. The Commission’s “Congestion Management Program - Statement of Approach” is intended to provide information and clarity about the way in which the Commission is going to deal with 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 can be found at: - Southern Generators/NEMMCO proposal on Management of negative settlement residues in the Snowy Region - Ministerial Council for Energy proposal on Region Boundaries - 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 Supplementary submission to Issues Paper

On 25 September 2006, the Commission received a supplementary submission from Macquarie Generation, including a report by consultants MMA. The report is directly relevant to issues the Commission is investigating, including the: (1) materiality of congestion; (2) investment response of TNSPs to address congestion in the period 2001 to 2006; and (3) use of the “Market Benefits” and “Reliability” limbs of the Regulatory Test in assessing congestion related projects.

Industry Leaders Strategy Forum

On 17 October 2006, the Commission held an Industry Leaders Strategy Forum to obtain views and opinions from industry leaders on a range of congestion related issues. The Commission invited various industry bodies to send one to two representatives, at the CEO level, to participate in the Strategy Forum. The Commission invited the following industry bodies to participate in the Strategy Forum, asking for one to two representatives, at the CEO level: National Generators Forum (NGF); Energy Retailers Association of Australia (ERAA); Energy Users Association of Australia (EUAA); Major Energy Users (MEU) and Electricity Transmission Network Operators Forum (ETNOF). The Commission also extended an invitation to the Australian Energy Regulator (AER) and the National Electricity Market Management Company (NEMMCO). The ETNOF, ERAA, AER, and NEMMCO had CEO or Managing Director representation at the Strategy Forum. Due to a conflicting ESAA meeting, CEOs from the NGF were otherwise engaged; senior management represented the NGF instead. Unfortunately, due to the short notice, neither the EUAA nor MEU were able to attend, but the Commission intends to separately consult with end user representation. Additional information on this forum is available under “Forums and workshops”.

Positive Flow Clamping Workshop

On 10 January 2008, the Commission held a Positive Flow Clamping workshop in Sydney to discuss Positive Flow Clamping and other approaches to managing negative settlement residues. The Commission invited those stakeholders who expressed an interest in, or provided analysis of, Positive Flow Clamping in their submissions to the Congestion Management Review Draft Report, to participate in the workshop. Interested jurisdictions were also invited. Following an AEMC introductory presentation, NEMMCO spoke on implementation issues associated with PFC. Selected participants then gave presentations both supportive and critical of PFC. Two additional participants gave presentations on alternatives to PFC. A copy of the 2003 CRA report, as referred to in the Summary of Discussion and the presentation from TRUenergy, can be found on the MCE website.

Consultancy report on measuring congestion published

As part of the Congestion Management Review, the Commission is considering different ways to measure the materiality of congestion in the NEM. On 30 October 2006, the Commission published an independent consultancy report by Darryl Biggar, “An assessment of the significance of intra-regional congestion in the NEM”. The Report proposed a possible measure by looking at the price separation between “connection points” and the Regional Reference Price” (RRP). The report assessed the frequency of this “mis-pricing” in each NEM region. The report noted that to address all the “mis-pricing” by directly pricing it would involve setting a large number of separate generator prices and that congestion management mechanisms other than creating new regions would need to be considered. The frequency and magnitude of this price deviation is a potential indicator of the materiality of congestion. The report does not appear to consider the magnitude of the mis-pricing and thus the materiality of the impacts, nor does it consider alternative congestion management options or implementation issues.

Additional supplementary submissions

On 6 November 2006, the Commission received a letter from a group of generators foreshadowing the submission of supplementary material to inform the Commission’s Congestion Management Review. On 17 November 2006, the Commission received a supplementary submission from most of those generators on the materiality of congestion. On 9 November 2006, the Commission received a supplementary submission from Delta Electricity, expanding on its submission to the Issues Paper on congestion management. The Commission also received a submission from Powerlink Queensland on the consultancy paper by Darryl Biggar, the “Significance of Intra-regional Congestion in the NEM”.

Statement of Approach – December 2006

The Commission is considering three Rule change proposals and one reference for Review that relate to various aspects of network congestion management in the NEM. It is essential that this work is co-ordinated by the Commission to deliver a comprehensive “Congestion Management Regime” for the market going forward. The Commission’s assessment of these matters has been extended for a range of reasons. Accordingly, the Commission has written to the Ministerial Council on Energy regarding the timetable for the review of congestion management directed by the MCE. The Commission has also released a revised version of its Congestion Management Program – Statement of Approach - December 2006 which is intended to provide updated information and clarity about the way in which the Commission proposes to deal with the three congestion related Rule change proposals and the Congestion Management Review in an integrated manner.

Directions Paper released

On 12 March 2007, the Commission released a Directions Paper (and attachments) to inform interested stakeholders as to the Commission's progress and the areas the Commission intends to focus on in its draft report of the Congestion Management Review. Submissions closed on 13 April 2007. Also published with the Directions Paper is a report from NEMMCO on Impact of intra-regional constraints on Pricing. This report reviews the previous work by Darryl Biggar on mis-pricing. On 22 March 2007, the Commission published a paper labelled Pricing and Hedging Problems in the NEM Using Constraints Based Residue prepared by Dr. Biggar. The proposal in this paper is discussed in the Directions Paper.

Updated Schedule for congestion management projects

The Commission has previously indicated its intention to publish a draft report in June 2007. However this has been revisited in light of the receipt of a number of Rule changes in relation to proposed changes to the Snow Region boundary. Given the interrelationships between the region boundary Rule change proposals and the Congestion Management Review, the Commission considered it appropriate to align the publication of a draft Review report with the determinations for the Rule changes such that these matters could be considered by the Commission and by interested parties in an integrated manner. On 28 March 2007, the Commission released its Updated Schedule for its work on congestion management. The updated schedule will provide interested parties with an opportunity to consider the interrelated issues associated with the Congestion Management Review, the MCE regional boundaries Rule change proposal and the various Rule change proposals in relation to the Snowy region boundary in an integrated manner.

Publication delay of Congestion Management Review Draft Report

The Commission has postponed publication of its draft report on Congestion Management Review from 30 August to 20 September to allow the Commission to finalise the preparation of the report. The publication of the CMR draft report is to be aligned with publication of the draft determination on the MCE’s Rule change proposal for a new Process for Region Change. The Commission considers that alignment of these projects is in the best interests of consumers as it will provide interested parties with an opportunity to consider together the related issues associated with the CMR and the MCE’s proposal for a new Process for Region Change proposal. The Commission has postponed the publication of its draft report on the Congestion Management Review to 27 September 2007. The reasons for the Commission’s decision relate to the complexity of the matters under consideration and the need to comprehensively address these matters including the interrelationship of this review with the MCE Rule change proposal for the process for region change. It is on this basis that the Commission considers that it is in public interest to extend the time period for the making of the draft determination by one week.

Draft Report and Exposure Drafts released

On 27 September 2007, the Commission released its Draft Report of the Congestion Management Review. Submissions on the Draft Report were originally due by 9 November 2007. On 24 October 2007, the Commission announced an extension of the date for submissions to 3 December 2007. On 25 March 2008, the Commission published an Exposure Draft. The Exposure Draft presents for consultation draft rules for the recommendations set out in the Congestion Management Review Draft Report. The Draft Report recommendations proposed changes to the current arrangements for: the recovery of negative settlement residues (recommendation 3); network constraint formulation (recommendations 6 and 7); and information on congestion (recommendation 8 and 9). On 2 May 2008, the Commission published a Policy Paper and Exposure Draft. The current Rules provide for generators who have paid to augment the network to receive contributions from a party who subsequently connects to and benefits from that part of the network. The Policy Paper and Exposure Draft aims to clarify these arrangements and presents legal drafting to achieve this. The Commission is seeking consultation on this drafting.

Supplementary Material

On 22 February 2008, the Commission published two advisory papers that present a framework for considering the ranges of options for pricing congestion. The first paper, presenting an overview of this framework, is a joint paper by Tendai Gregan and E. Grant Read, titled “Congestion Pricing Options for the Australian National Electricity Market: Overview”. The second paper by E. Grant Read, presents a more detailed description of the framework for pricing congestion. This paper is titled, “Network congestion and wholesale electricity pricing in the Australian National Electricity Market: An analytical framework for describing different options”. The Commission received a letter from Powerlink on 13 March 2007 that discussed how output reductions by South Queensland Generators caused by the drought were affecting transmission constraints in Queensland. The Commission has published a consultancy report from CRA on “Constraint Support Pricing – Implementation of Snowy Proposal”. This report was submitted to NEMMCO in March 2005 to assist in implementing the Tumut Constraint Support Pricing/Constraint Support Contract Trial. This CRA report was referenced by the Commission in both the draft and final Rule determinations on Management of Negative Settlement Residues by Re-orientation. As part of the Congestion Management Review, the Commission considered different ways to measure the materiality of congestion in the NEM. On 30 October 2006, the Commission published an independent consultancy report by Darryl Biggar that proposed a possible measure by looking at the price separation between “connection points” and the Regional Reference Price” (RRP). The report assessed the frequency of this “mis-pricing” in each NEM region. The report noted that to address all the “mis-pricing” by directly pricing it would involve setting a large number of separate generator prices and that congestion management mechanisms other than creating new regions would need to be considered. The frequency and magnitude of this price deviation is a potential indicator of the materiality of congestion. The report does not appear to consider the magnitude of the mis-pricing and thus the materiality of the impacts, nor does it consider alternative congestion management options or implementation issues. The Commission received a submission from Powerlink Queensland on the consultancy paper by Darryl Biggar, the “Significance of Intra-regional Congestion in the NEM”.

Final Report submitted to MCE

On 16 June 2008, the Commission published the Final Report of the Congestion Management Review. The Commission presented the Final Report to the Ministerial Council on Energy (MCE) on 10 June 2008. As directed by the MCE, this Review has examined the Rules for the National Electricity Market that govern how network congestion is managed. It considered how those Rules could be improved in ways that enable market participants to manage the associated risks more efficiently and recommended four specific changes.

Extending the expiry date of the participant derogation in Part 8 of Chapter 8A of the Rules

The participant derogation in Part 8 of Chapter 8A of the Rules enables NEMMCO to formulate network constraint equations using both inter and intra-regional power flows and to manage negative residues in the National Electricity Market (NEM). It also implements the Tumut Constraint Support Pricing/Constraint Support Contract (CSP/CSC) Trial, as amended by the Southern Generators Rule. Clause (3) of the Part 8 derogation states: “this participant derogation will cease to apply on on: (1) 31 July 2007; (2) the implementation of the first regional boundary review by the AEMC; or (3) as otherwise determined by the AEMC.” On 19 October 2006, the Commission issued an Information Disclosure Statement on the expiry of this participant derogation. The Information Disclosure Statement informed stakeholders of the Commission’s intentions regarding the timing of the derogation’s expiry. On 14 December 2006, the Commission published a (draft) determination on the extension of the expiry date for the Snowy Constraint Support Pricing/Constraint Support Contract (CSP/CSC) Trial and NEMMCO’s power to manage negative residues by extending the expiry date of the participant derogation in Part 8 of Chapter 8A of the Rules. The Commission proposed to extend the derogation from 31 July 2007 to the earlier of such time as there is a boundary change to the Snowy region or 30 June 2008. Submissions closed on 31 January 2007. On 4 May 2007, the Commission published its determination and decision report on the expiry date for the participant derogation in Part 8 of Chapter 8A of the National Electricity Rules (Rules) (Part 8 derogation). The Commission determined to extend the Part 8 derogation under clause (e)(3) of Part 8 of Chapter 8A of the National Electricity Rules. The new expiry of the Part 8 derogation is on 31 October 2008 with the option to expire the whole derogation, the Tumut CSP/CSC Trial and/or Southern Generators Rule on a date other than 31 October 2008 or a specified event. The Commission published a notice of its determination on 10 May 2007.