The Australian Energy Market Commission (AEMC) has published a draft proposal to change the rules that govern rebidding in the national electricity market.
There has been widespread interest in the rebidding rules since as far back as 2011, when the Federal Court in AER v Stanwell Corporation found that Stanwell had complied with the provisions of the National Electricity Rules which require generators to make rebids in good faith.
This prompted the South Australian Government to propose a rule change in November 2013, which the AEMC used as an opportunity to undertake a comprehensive study of rebidding in the national electricity market, commissioning its own reports and developing its own amendments for consultation.
The AEMC has now published a second set of proposed amendments, which would:
- replace the existing rule (clause 3.8.22A) which requires offers, bids and rebids to be made in good faith, with a new rule that prohibits offers, bids and rebids that are false, misleading or likely to mislead; and
- require rebids to be made as soon as practicable after a generator or market participant becomes aware of the change in material conditions or circumstances that has prompted the rebid.
False or misleading rebids
The AEMC has proposed that a generator or market participant making an offer, bid or rebid will be taken to represent that it will not be changed unless the generator or market participant becomes aware of a change in the material conditions and circumstances upon which it was based. The offer, bid or rebid will be deemed to be false or misleading if, at the time it was made, the market participant did not have a genuine intention to honour that representation, or did not have a reasonable basis to make it.
In most circumstances this would involve little change to existing obligations, which require offers, bids and rebids to be made in good faith. The effect of the existing law is that generators and market participants must act honestly. That is, they must have a genuine intention to honour offers, bids or rebids in the absence of any material change to the circumstances upon which they are based. A generator that honestly intends to honour its offer, bid or rebid would normally comply with a law that requires it to have a reasonable basis for representing that it would do so.
The exception is where a person makes an honest mistake. It is possible, for example for a generator to mistakenly submit a rebid which it did not intend to put into the market. Such a mistake may not contravene the existing rules (because a person can act in good faith yet still make an honest mistake) and the AER's own guidelines permit a generator to submit a further rebid to rectify such an error.
However the AEMC's proposed rule would make such a mistake illegal. This is because a generator who mistakenly submits a rebid, which it plainly did not intend to honour, will be deemed to have misled the market, even though it did not intend to do so. The absence of a defence for an honest and reasonable mistake does appear to be a material omission in the drafting of these proposed rule changes.
Rebidding as soon as practicable
Additional compliance challenges can be expected to result from proposed changes that would require market participants to make a rebid as soon as practicable after becoming aware of the material change that prompted the rebid.
This is a significant change to the existing rules and will raise a number of compliance challenges for the electricity industry. For example:
- An earlier AEMC draft required rebids to be made as soon as 'reasonably practicable'. The word 'reasonable' has now been removed, suggesting that the AEMC wishes to impose a stricter standard. This would, for example, have implications for generators that use automated systems to operate their generating plant overnight. If a generator does not become aware of a material change until the next morning, can it then make a rebid? Is it enough that the generator has been informed of the material change, or does time start to run only once the relevant trading staff become aware of it? It may not be reasonably practicable to rebid straight away (since most generators do not staff their trading rooms overnight) but it may be feasible in every other respect.
- In deciding whether a market participant has made a rebid as soon as practicable, a court would be required to have regard to the importance of rebids being made, where possible, in sufficient time to allow the market to respond.
This second proposal is an unusual one. It suggests that what is 'practicable' (in terms of the time taken to make a rebid) will depend not only on the time that has elapsed since the material change, but also the time between the making of the rebid and the commencement of the relevant dispatch interval.
This could mean, for example, that two rebids, made for identical reasons, might produce different compliance outcomes, depending on how close the rebid was made to the relevant dispatch interval. This presents an enormous compliance challenge for generators, since it will require traders to make snap judgments on whether or not the window for making a rebid has closed, depending not only on the time that has elapsed since the change occurred, but the time that will pass before the next interval commences.
The AEMC is seeking further submissions by 29 October, and expects to finalise its rule change by 10 December 2015.
For more information please see the AEMC's draft proposal.