On 2 November 2023, the Australian Energy Market Commission (AEMC) self-initiated a review of electricity compensation frameworks in the National Electricity Rules (the Review), following the disruptive market events of June 2022. The Review aims to improve the collective functioning of these frameworks to provide market participants with the confidence necessary to ensure electricity supply during market disruption.

During the June market suspension events and the following compensation assessment processes, issues were identified with the various compensation frameworks, including how they worked together.

The Commission has published the Terms of Reference (TOR) for this review alongside the consultation paper which sets out three main areas of investigation identified by the Commission.

• Objectives and methodology: Are there changes or improvements to the way the compensation frameworks are designed that would lead to improved market outcomes and better support the long-term interests of consumers?
• Governance: Are the current roles and responsibilities for administering the compensation frameworks appropriate?
• Administrative: What administrative improvements and other implementation changes are required to help ensure the frameworks achieve their objectives?

The Review is an opportunity to ensure the frameworks align to achieve optimal outcomes both on a standalone basis and in combination.

Next steps

The scope of the Review will be finalised following the first consultation process.

Stakeholders can help shape the Review process by participating in our consultation process by making a submission. 

Written submissions responding to this consultation paper must be lodged with the Commission by 1 February 2024.

The Commission publishes submissions on its website. However, we will not publish parts of a submission that we agree are confidential, or that we consider inappropriate (for example offensive or defamatory content, or content that is likely to
infringe intellectual property rights).

Background

In June 2022, a combination of factors led to significant operational challenges in the NEM.

Sustained high prices led to Queensland exceeding the cumulative price threshold (CPT) on 12 June 2022. This led to the application of the administered price cap (APC) of $300/MWh (at that time) being applied in Queensland. This was then followed by the cumulative price threshold (CPT) being exceeded in New South Wales, Victoria, and South Australia on 13 June 2022 and the APC being applied in these regions. Due to ongoing operational challenges in the power system, the Australian Energy Market Operator suspended the market on 15 June 2022.

Significant claims for compensation were made following these events and revealed several flaws within those frameworks under the NER. The following compensation frameworks were applied during these events:

• the directions compensation framework,
• the administered pricing compensation framework, and
• the market suspension compensation framework.

The Review also considers directions compensation from the Improving security frameworks for the energy transition rule change

Following feedback from stakeholders in the Improving security frameworks for the energy transition rule change, the Commission noted there was strong support for considering changes to the directions compensation framework as part of a broader review of compensation frameworks.

Consequently, the issue of directions compensation will no longer be considered in the Improving security frameworks for the energy transition rule change, but instead, will be considered through this review.

Alignment with other AEMC projects

The AEMC will consider this review in the context of its other projects and strategic objectives to ensure alignment across its work plan. In particular, this review will consider interactions with: 

• The gas compensation and dispute resolution frameworks rule change; and
• A rule change request submitted by Tilt Renewables, regarding the cost recovery process for capacity directions.