How should the AER’s wholesale monitoring responsibilities change, to suit the changing market environment?

At the other end of the AEMC rule change sausage machine to the IESS changes is a Rule Change Request made by the AER last Tuesday (21st December) that they hope will enable them to focus better on what the real challenges and problems are in wholesale market monitoring & reporting, given the changing market environment:

The AEMC has set a project page up for it here, but has progressed no further than doing that, at this point.  At this point, I only have two comments:

(A)  It’s a growing challenge to keep up!

In relation to this rule change request, and also many other reform initiatives on the go, it’s become impossibly hard to keep up:

Challenge #1)  To know what is being proposed and assessed (and where); and

Challenge #2)  To ascertain what we should be focusing on, in order to deliver maximum benefit to our clients (a process that requires a fuller understanding of Challenge #1).

If it was not for Jennifer Brownie posting this comment at the end of a prior WattClarity article,  I would have had no hope of being aware of what the AER had asked for … perhaps until the AEMC had published its Discussion Paper!

Surely there’s a better way of helping everyone stay on top of the various reform threads operational across the National Electricity Market … and also spread across a variety of localised areas.  As a software company that helps to make complexity understandable, we’d be very happy to hear from anyone who has ideas about how we can help with this!

(B)  What the AER is asking for

For the convenience of readers here, Jennifer noted:

The AER rule change request posted by AEMC today (22 December 2021) may assist to shine a light on why Queensland is seeing such insane wholesale prices compared to the rest of the NEM eg the year-to-date FY22 wholesale electricity price in Queensland is $95.88/MWh which is nearly 50% more than NSW at $65.13 and 3 times more than Tasmania at $27.68/MWh.

The AER’s usual report on individual high price events is no longer fit for purpose and this has been identified by the AER in its point 2 below “The timing and format of reporting, to enable the AER to look at prices more holistically e.g. grouping prices in where there is an observed behavioural trend.”

Posted by AEMC today:

Dear Ms Collyer

Re: Rule change proposal – AER reporting under clause 3.13.7 of the National Electricity Rules

Please find attached a rule change request proposing amendments to clause 3.13.7 of the National Electricity Rules (the rules), which relate to AER reporting obligations on significant price variations and high price events in the National Electricity Market (NEM).

Currently, clause 3.13.7 of the rules places a number of wholesale market reporting requirements on the AER:
• Reporting quarterly on ‘significant price variations’.
• Reporting on any market condition the AEMC or ACCC asks the AER to report on, if the AER agrees.
• Reporting on energy 30-minute prices above $5,000/MWh.
• Reporting on ancillary service 30-minute prices above $5,000/MW.

While it is important that the rules require the AER to analyse and report on significant wholesale price outcomes in the NEM, the AER considers that the current requirements are overly prescriptive and no longer fit for purpose.

The AER’s proposal is to replace the current rule with a principles-based reporting framework, supported by AER guidance. The intent is to replace the current clause 3.13.7 with a new, less prescriptive framework for reporting on significant price outcomes. This would provide flexibility on:

• The prices the AER will report on, to enable the AER to adjust to changing market conditions without a further rule change.
• The timing and format of reporting, to enable the AER to look at prices more holistically e.g. grouping prices in where there is an observed behavioural trend.
• The factors the AER must consider in the reports, to tailor reporting to the particulars of the price events.

Increasing flexibility in this way would ensure the AER’s reporting provides more insightful analysis into market outcomes and behaviour, supporting the achievement of the National Electricity Objective.

The AER requests that the AEMC expedite this proposed rule change. The AER considers this proposed rule change is non-controversial, as it relates specifically to AER reporting requirements and it is unlikely to have a significant effect on the wholesale electricity market or the interconnected national electricity system.

Finally, I note the work done at a staff level between the AER and AEMC including meetings and guidance on the principles-based approach to drafting the amendments. I would like to thank the AEMC staff for their assistance in developing this rule change proposal.
For any further information please contact Scott Johnston on 08 8213 3426.

Yours sincerely
Justin Oliver
Board Member
Australian Energy Regulator
Sent by email on: 21.12.2021

Given that we’ve just released GenInsights21 after an intensive period of analysis of the variety of different ways the market is changing, we can empathise with the AER when they say that the rules of the past may no longer be fit for purpose.  As explored through GenInsights21:

1)  The technology mix has already changed significantly, and is set to change in an accelerated manner in future.

2)  Ownership structures are changing…. with hybrid structures soon to be possible.

3)  The way in which participants are behaving in the market – including with the supercharging of various technology add-ons (such as auto-bidders and self-forecasting processes) that pose their own questions such as those raised in GenInsights21.

4)  In various ways (such as we saw yesterday in South Australia) the weather is playing an increasingly complex and multi-faceted role in the supply side, the demand side, and the network connections in between.

5)  The way in which wholesale and retail stakeholders are interacting is changing massively … and indeed raises questions as to the long-term purpose of what might become an increasingly arbitrary demarcation?!

6)  The list goes on…

It’s perhaps overdue that the old AER processes were re-assessed!