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Focus: AEMO set to take control

25 May 2009

In brief: The Australian Energy Market Operator is set to become the market operator for electricity and gas markets in the eastern states. Special Counsel Louise Thomson (view CV) and Law Graduate Lachlan Clancy report on the implementing legislation, which has recently been introduced into the South Australian Parliament.

How does it affect you?

  • From 1 July 2009, the Australian Energy Market Operator (AEMO) will take over the market operator functions previously carried out by NEMMCO, VENCorp (Victoria), Gas Market Company (NSW and the ACT), REMCo (South Australia) and the Gas Retail Market Operator (Queensland). AEMO will also become the national gas bulletin board operator, and will assume specific functions in the Victorian and South Australian electricity industry.
  • Energy retailers and other industry participants operating in both electricity and gas markets across multiple states will now interface with a single market operator, AEMO.
  • Existing market operation and administrative functions will initially be transferred to AEMO without significant changes to the substance of current market rules.
  • AEMO will have two new functions, for which it will have specific information-gathering powers:
    • the planning and development of the national electricity transmission grid; and
    • the production of a gas statement of opportunities.

Background

The transfer of energy market operator functions to a single entity under a national legislative framework represents the latest stage in the energy market reform program driven by the Ministerial Council on Energy. It continues the process of bringing together the roles of multiple jurisdictional bodies into national institutions with clearer functional separation. In 2005, the Australian Energy Market Commission and the Australian Energy Regulator were established as, respectively, the national rule-making and regulatory body. Four years on, AEMO will be charged with the operation and administration of national energy markets, although, for the time being, Western Australia will retain its own market operator.

In its final report to the Council of Australian Governments in January 2007, the Energy Reform Implementation Group endorsed a proposal to establish a national energy market operator, building on the recommendation of the Gas Market Leaders Group for a single gas market operator. Combining market operator functions and expertise in AEMO is intended to improve the efficiency of Australian energy markets by reducing administrative costs and complexity for participants, and by facilitating better understanding and management across all markets. In the longer term, greater convergence between gas and electricity markets may follow.

AEMO will be a company limited by guarantee, with the voting membership divided between governments (60 per cent) and industry participants (40 per cent). It will carry out its functions on a not-for-profit basis.

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Transfer of existing functions to AEMO

The National Electricity (Australian Energy Market Operator) Amendment Bill 2009 (SA) and the National Gas (Australian Energy Market Operator) Amendment Bill 2009 (SA) (the AEMO legislation) will effect the transfer of existing functions from NEMMCO and the former gas market operators to AEMO. From 1 July, AEMO will become responsible for:

  • the operation and administration of the wholesale electricity exchange and the existing state-based retail gas markets;
  • the administration of the national gas bulletin board;
  • VENCorp's functions relating to the operation of the Victorian gas transmission system and wholesale gas market;
  • VENCorp's functions as an electricity transmission network service provider and planning body in Victoria; and
  • the planning functions currently undertaken by the Electricity Supply Industry Planning Council in South Australia.

Initially, only minimal changes will be made to the substance of existing market rules and procedures, but they will be brought within the national governance framework. Importantly, the operational provisions of existing retail gas market rules will become procedures under the AEMO legislation. As indicated in the second reading speech in Parliament, the AEMO legislation is intended to:

  • create a streamlined process for the registration of energy market participants across markets;
  • implement a standard cost-recovery system across the energy markets, based on common principles;
  • replace multiple-rule change processes for gas markets with a single national process to amend procedures, for which AEMO will be responsible;
  • establish a common dispute resolution procedure for gas markets;
  • enable central administration of customer transfer and metering functions for retail competition; and
  • generally, allow for greater synergies to develop between gas markets and the electricity market.

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Transitional provisions

To manage the transition of gas market regulation to this new national framework, the AEMO legislation includes transitional provisions intended to ensure that the transfer does not affect:

  • the previous operation of the jurisdictional rules, including rights, privileges or liabilities acquired or incurred before 1 July; or
  • the continuation of an investigation or an administrative process (such as a jurisdictional rule change) under the superseded jurisdictional rules.

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New AEMO functions

National Transmission Planner

The AEMO legislation defines the role of National Transmission Planner (NTP) to be undertaken by AEMO. As NTP, AEMO will provide a national strategic perspective for electricity transmission planning and coordination. AEMO's key responsibility will be the preparation of the National Transmission Network Development Plan (the NTNDP), including long-term forecasting and planning. AEMO will also establish and maintain a public database of information relevant to the planning and development of the national grid.

The NTNDP will complement the annual planning reports produced by individual transmission network service providers under the National Electricity Rules. The second reading speech notes the significance of the NTP function in helping to ensure that local network investments contemplate the broader strategic direction of the network. The NTNDP should help to guide appropriate investment in network infrastructure and promote efficiency savings.

Gas Statement of Opportunities

Another new function is the preparation of a Gas Statement of Opportunities (the GSOO) to assist market participants, and others, make informed decisions about investment in pipeline capacity and other aspects of the natural gas industry. The GSOO will include:

  • information about medium- to long-term demand for natural gas and pipeline services;
  • an assessment of supply and pipeline capacity to meet existing and foreseeable demand for gas;
  • forecasts for the outlook for the natural gas industry over a 20-year planning horizon; and
  • an assessment of likely long-term shortfalls in natural gas reserves and of production or transmission constraints.

The GSOO will complement the statement of opportunities already produced for the electricity market and help policy-makers to assess Australia's long-term energy demands. AEMO will also take the GSOO into account when preparing the NTNDP.

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Information-gathering powers

In order to carry out its functions, and, in particular, the new NTP and GSOO obligations, the AEMO legislation gives AEMO increased information-gathering powers. These are common to gas and electricity, and are designed to create a flexible, effective and transparent mechanism for the gathering of information. To address concerns about the impact of these heightened powers, the AEMO legislation also makes specific provision for the protection of information given to AEMO.

AEMO may obtain information (for specified functions only) through the use of 'market information instruments'. These are conceptually similar to the regulatory information instruments that may be used by the Australian Energy Regulator for the purposes of its functions.

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Further developments

While the AEMO legislation creates the framework and authority for AEMO's powers and functions, the detail of how the energy markets will operate under that common framework will be contained in amendments to the National Electricity Rules and National Gas Rules, and in the market procedures. Consultation on the proposed amendments was undertaken in late 2008 and early 2009, but final versions are yet to be released.

It is expected that AEMO's functions will be expanded to include the operation of a new gas short-term trading market, the framework for which is currently being developed under the guidance of the Ministerial Council on Energy and the Gas Market Leaders Group.

Published 25 May 2009

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