Directions Paper adjusts approach to loop IRSR

The rule change for Inter-regional settlements residue arrangements for transmission loops is open. Project Energy Connect (PEC) will introduce a transmission loop between NSW, SA and Victoria when Phase 2 is completed.

The rule change aims determine a new method for allocating inter-regional settlements residue (IRSR) in transmission loops.

The AEMC is seeking feedback on its proposal for ‘netting off’ IRSR in transmission loops.

The ‘netting off’ approach is described in the Directions Paper published 19 June 2025.

Submissions to the directions paper are due by 10 July 2025.

The final determination is due to be published on 25 September 2025.

A focus on the risk of high negative IRSR

Under the new direction proposed, netting off would be applied to allocate IRSR, so as to only allocate the net residue each interval.

With positive IRSR being allocated to Settlement Residue Distribution (SRD) holders, a key focus of the consultation has been on the likelihood and magnitude of negative IRSR arising around transmission loops which ends up getting passed on to consumers through transmission prices.

Negative IRSR around a loop is expected to be higher and more variable than it is in today’s NEM on radial interconnectors.

In its draft determination, released on 12 December 2024, the AEMC had proposed to share negative IRSR for the looped interconnectors between the looped regions.  The draft rule aimed to manage the risk of large negative IRSR by sharing negative IRSR between regions but this is now superseded with the approach in the Directions Paper.

AEMC writes that feedback and further analysis suggests the draft rule is not sufficient to mitigate the negative IRSR risk. Hence the ‘netting off’ approach that is now proposed.

The directions paper goes into detail about the risks:

• CNSPs are exposed to cash flow risks due to potentially large negative IRSR.
• The costs of managing those risks are ultimately met by consumers through higher transmission prices.

And the paper outlines how the risks are mitigated under the proposed approach.

Positive residue allocations impacted

The directions paper also goes into detail about what netting off means for positive residue allocations, under the proposed approach:

• When loop IRSR is net positive, negative IRSR in a dispatch interval would be deducted from
  the positive IRSR that arises on the other arms, in proportion to the size of the positive IRSR on
  each arm. This netted IRSR would then be allocated to SRD unit holders.

The directions paper is seeking feedback

The directions paper is seeking feedback, in particular, on:

• How the netting off rule would operate, with a proposed approach given.
• The approach to allocating cash flows to Coordinating Network Service Providers
• The need for, and timing of, a future review

Submissions to the directions paper are due by 10 July 2025.