Submission to the AEMC on the National Electricity Amendment (Amendment of the Market Price Cap, Cumulative Price Threshold and Administered Price Cap) Rule

PIAC provided a response to the Australian Energy Market Commission (AEMC) on the National Electricity Amendment (Amendment of the Market Price Cap, Cumulative Price Threshold and Administered Price Cap) Rule.

The AEMC Reliability Panel has recommended a rule change increasing the market price settings – the Market Price Cap (MPC), Cumulative Price Threshold (CPT), and Administered Price Cap (APC).

PIAC supports the market price settings remaining at their current levels for the review period. There is insufficient evidence to suggest that the reliability standard is likely to be breached during the review period. There is also insufficient evidence that consumers would value any resulting increase in reliability sufficiently to support paying the increased costs involved.

We note that the terms of reference being used by the Commission to determine the rule change are different to those of the Reliability Panel who recommended the change. Most notably, the AEMC has decided to include the federal government’s Capacity Investment Scheme (CIS) in its considerations, where this was ruled out of scope for the Reliability Panel. Given this, a rule change should only be made after the matter is returned to the Reliability Panel with an updated terms of reference for review and resubmission.

PIAC proposes that the practice of intentional goldplating of the system is abandoned. This refers to using the market settings in isolation – aiming to ensure the reliability standard is not breached using these signals alone, and leaving the other elements of the reliability regime to intervene when this failed. This may have been appropriate once, when the National Energy Market (NEM) was based on thermal generation and was one-directional. But today’s system is more complex and dynamic. In this new context, the market price settings should be used in conjunction with the other elements of the reliability regime. To do otherwise robs consumers of the possibility of receiving the amount of reliability they are willing to pay for. 

Finally, we argue that we should end the practice of having one set of market price settings across the NEM. Moving to a more bespoke system, in which each jurisdiction has market price settings set according to their needs, would not be difficult to arrange, and would immediately return revenue to consumers without affecting the reliability outcomes they experience.