A quick note this morning (might fill in more details later) to note that the AER’s released its 36-page report following an investigation into the June 2022 events that led to the market being suspended:
Key references seem to be:
1) The Report itself
2) This Media Release is also worth reading.
3) Linking the two is this page that does not say much in its own right.
(A) What’s the AER saying?
I have very quickly scanned the Report and Media Release and have copied out the following:
(A1) What were they looking for (and how)?
In p5/36 of the PDF (in the Executive Summary) they write:
‘The AER investigation was instigated in response to reports from a number of stakeholders, including AEMO, that generators were withdrawing capacity in order to be directed on by AEMO, which would then enable them to obtain compensation pursuant to the directions compensation regime established by the Rules. If generators had withdrawn their capacity without reasonable cause and had caused AEMO to issue a direction, this conduct would likely have amounted to a breach of clause 4.8.9(c2) of the Rules. ’
As noted on WattClarity during that time, there were plenty of emotive words being used by a number of stakeholders with respect to participant behaviour. With respect to what the AER was required to look for, on p6/36 there is some good context:
‘In order to establish a contravention of clause 4.8.9(c2) it is necessary to establish three main elements. These are
(a) establishing that the generator’s act or omission caused or significantly contributed to the circumstances causing a direction to be issued,
(b) establishing either intention or recklessness, and
(c) establishing the absence of a reasonable cause for the act or omission in question’
… with my formatting added.
(A2) What did the AER find?
In the same paragraph, the AER then concludes:
‘The AER is of the view that there was evidence to support allegations of recklessness in causing or contributing to directions but that there were significant difficulties in proving the absence of reasonable cause. ’
Let’s quickly look at both aspects of this, but in reverse…
(A3) Was there ‘Reasonable Cause’ for withdrawal of capacity?
For context, readers might remember that as the June problems were evolving, we published a number of articles on WattClarity about what was unfolding – including the article ‘Two alternate theories of why capacity was withdrawn’ (as to us at the time, many stakeholders having their say were overlooking the likelihood that Theory 2 was a significant factor).
—
It’s worth noting that in the AER report they choose to write their finding as ‘significant difficulties in providing the absence of reasonable cause’, but in the Media Release they write ‘generators may have had a reasonable cause to withdraw capacity given they were facing limited fuel availability and wanted to conserve fuel for peak periods or preserve fuel stocks.’
My sense is that this report won’t be the end of the conversation – it seems unlikely to change some people’s predetermined point-of-view in terms of how these participants (be they coal, gas, hydro, battery or other) were (or were not) ‘gaming the market’ (or other emotive descriptor here).
(A4) What’s this about ‘Recklessness’?
I’ll need to read more about this, but I wonder what this actually means – especially given that the AER ends their Media Release by noting …
‘Despite the behaviour of generators being unhelpful in withdrawing capacity, we otherwise found that AEMO and generators worked closely together in difficult circumstances and that there was good transparency and communication by both AEMO and generators’.
(A5) Poor compliance practices in relation to bidding
Worth also noting that some aspects of the investigation are ongoing – and, in particular:
‘Further, the AER’s investigation revealed some poor compliance practices by some generators regarding Projected Assessment of System Adequacy (PASA) submissions, late rebidding and contemporaneous record keeping’
(A6) One participant singled out (but not named)
Also on p6/35 there is this:
‘The AER is continuing to investigate one generator for possible breaches of the Rules concerning PASA submissions’
(B) Prior coverage on WattClarity®
You’ll find a significant number of articles collated under the Headline Event ‘2022 – June – QLD (12th) and NSW, SA and VIC (13th) hit Cumulative Price Cap’ … including the two noted above.
(C) Reporting about this AER Report elsewhere
If time permits later, we might be able to fill this in…
It’s not hard to see where this is all going. The AER et al are now operating beyond their core function, by interfering to promote wind and solar. Regardless of one’s position on the reasons, the outcome is entirely predictable – increasing market intervention until the government owns it all.
The media release is incredible, with three ‘recommendations’ including:
– contract monitoring
– increased regulation of coal-fired generators
– where governments have choice over their investments or underwriting, consideration should be given to actions to diversify the operation of dispatchable generation
The AER admits that hydro is setting high prices more often. But governments own the hydro! There’s no price caps on hydro being mentioned!
Let’s look at NSW post-Liddell. With 1300 MW needed to be supplied by the remaining coal-fired generators, they need more coal. But if it’s not already contracted, who’s going to sell it to them under the price cap?
The only way that will happen is if Matt Kean intervenes again and takes the power to curtail exports for local use. That’s a coal reservation.
If not, then the power will come from gas. But Bowen stuffed that up too, so the feds will need to implement the DGRM.
In both scenarios – forced export curtailment – the producers will be compensated. By taxpayers. So we pay anyway, but this time in national debt and less opportunity as resource companies say ‘no thanks’ and gradually pull out. Which is exactly what the Greens and co want.
As private companies start making noises about offloading projects, and politicians realise these power stations and mines and gas projects are needed to keep the lights on, politicians will spend public money to nationalise it.
Which is exactly what the AER has recommended ie diversify government investments into retiring coal to keep it online – Yallourn is already there, Eraring will be next. I’ll be surprised if Liddell doesn’t get a lifeline.
It’s a horror movie, with no end in sight.