National Electricity Rules: Proposed
change to rebidding in good faith
provisions
Discussion Paper
May 2014
Overview
The Australian Energy Market Commission (AEMC) has released a consultation paper on a proposed rule
change to the good faith rebidding provisions in the National Electricity Rules (NER). The proposed rule change
would result in significant changes to the existing provisions, including:
 requiring rebids to be made only in response to a significant and quantifiable change in price, demand or
other data published by the Australian Energy Market Operator (AEMO) or other material circumstances and
to be made as soon as practicable after the change;
 providing that non-fulfilment of a trader's subjective expectations is not a change that justifies a rebid;
 requiring generators to provide the Australian Energy Regulator (AER), at its request, with accurate and
complete data and information to substantiate compliance; and
 allowing the AER to assess compliance by reference to a generator's bidding behaviour in relation to its
entire generating portfolio.
The proposed rule change would also amend rule 3.8.22A( b) by recasting this provision in the negative so that
a rebid is taken not to be made in good faith unless the generator has the requisite genuine intention. The
Consultation Paper describes this change as reversing the onus of proof onto generators.
The proposed changes if implemented will have very serious implications for participants in the National
Electricity Market (NEM).
Background
The proposed rule change follows Justice Dowsett's decision in Australian Energy Regulator v Stanwell
Corporation Limited that certain rebids made by Stanwell Corporation Limited were not in breach of clause
3.8.22A of the NER. The case is currently the only judicial precedent on the interpretation and operation of the
good faith rebidding rule.
The proponent of the rule change request (the SA Minister for Mineral Resources and Energy) considers that
the Federal Court's interpretation of the good faith rebidding provisions is inconsistent with the original policy
intent of the good faith rebidding rule and introduces uncertainty around the operation of the rule.
In particular, the rule change request expresses concern that the Federal Court decision will result in
generators operating in a manner that originally led to the introduction of the good faith rebidding rule in
2002, such as late strategic reductions in capacity when other participants are unable to effectively respond.
Such practices are said to undermine the transparency and reliability of AEMO pre-dispatch forecasts which are
intended to provide a basis for efficient operational and investment decisions.
Essentially, the proposed rule change responds to three key regulatory concerns:
 the impact of rebidding, particularly 'late strategic rebidding', on the accuracy and reliability of AEMO
forecasts;
 the contribution of rebidding to high prices in the NEM; and
 'disorderly bidding' in relation to periods of congestion on the transmission network.
Call for submissions
The AEMC is currently seeking stakeholder feedback and comments on the proposed rule change proposal.
The closing date for written submissions is 22 May 2014.
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Key changes proposed to the good faith rebidding provisions
The proposed rule change would amend clauses 3.8.22(c), 3.8.22A(b) and 3.8.22A(c) as well as inserting new
provisions 3.8.22A(d) to (f). The most significant implications of the proposed rule change are outlined below:
Amending the 'safe harbour' provisions
The rule change request argues that the implication of the Federal Court's decision is that in order to establish
a breach of the good faith rebidding rule, the AER is required to prove that the trader had a positive intention
not to honour the bid or rebid at the time of making it. The rule change proponent considers this is a
substantial burden for the regulator and undermines the purpose of the good faith rebidding rule.
To address this issue, the proposed rule change would amend rule 3.8.22A(b) so that all bids and rebids will be
taken not to have been made in good faith unless at the time of making the bid or rebind, the generator had a
genuine intention to honour it if the material circumstances upon which it was based remained unchanged
until the relevant dispatch interval.
A proposal to shift the onus of proof to generators was specifically rejected by the ACCC in 2002 when the rule
was first introduced. The ACCC considered that the proposal had the potential to impose significant costs on
participants and was not consistent with the objective of providing a regime of light handed regulation. The
ACCC also expressed concern that the costs might encourage participants to bid and rebid more conservatively
leading to less flexibility in the market.
The proposed change to rule 3.8.22A(b) is significant, not only in the context of the NER, but also to the
regulatory environment more generally.
Rebids required to be made only in response to a significant and quantifiable change in
price, demand or other data published by AEMO or other material circumstances
In Australian Energy Regulator v Stanwell Corporation Limited, Justice Dowsett found that a trader's subjective
intention could be a material condition or circumstance, such that the failure of an expected change to
eventuate could constitute a valid basis for a further rebid.
The proposed rule change responds to this, and the concern that rebids might be made in response to
relatively minor changes in conditions, by requiring that rebids be made only in response to a significant and
quantifiable change in AEMO data or other material circumstance. In addition, the proposed rule change
inserts a note stating that the failure of an expected change to eventuate does not provide a valid reason for a
rebid.
In its consultation paper the AEMC raises questions about the suitability of this test, referring to the possibility
that a generator may identify a number of related events which together represent a material change in
conditions and circumstances. The proposed rule change also raises questions about what data a trader could
have regard to when deciding whether to rebid. The specific reference to AEMO data excludes many
categories of data traders would ordinarily take into account when trading, including the generator's contract
position. While the proposed rule change also references 'other material circumstance', it provides no
guidance as to what type of data this might include.
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Rebids required to be made as soon as practicable after the relevant change in material
circumstances
The rule change proposal, and AEMC's consultation paper, place significant emphasis on the practice of 'late
strategic rebidding' where traders place rebids close to dispatch, providing other participants with little or no
time to respond. This, it is suggested, has the potential to reduce the accuracy and reliability of AEMO's
forecasts and undermine competitive outcomes in the NEM.
Requiring rebids to be made as soon as practicable after the relevant change in material circumstances is
intended to address this concern and prevent generators from making rebids based on changes in
circumstances that should have been taken into account when the previous bid or rebid was made.
However, there is scope for uncertainty in the practical implementation of such a requirement, particularly
where traders rebid in response to observed trends in market conditions or a series of changes which together
constitute a change in material circumstances. The consultation paper notes that market participants may
perceive different periods of time as reasonable because the period of time that a generator may practically
require to form a response strategy and undertake a rebid may be influenced by a number of factors.
Generators required to provide the AER, at its request, with accurate and complete data and
information to substantiate compliance
The AER already has the power to request information under clause 3.8.22(c)(3) and to issue a statutory notice
under section 28 of the National Electricity Law. The proposed rule change adds to the AER's enforcement
powers by inserting a new provision which would require generators to provide the AER with accurate and
complete data to substantiate that a bid or rebid complied with the good faith rebidding rule.
Significantly, this requirement is within clause 3.8.22A so the rebidding civil penalty would apply to any
contravention.
This change has the potential to significantly increase compliance costs for generators, particularly if the AER
makes requests relating to large numbers of rebids and requires responses to be provided within a short period
of time. Further, managing any further or better evidence in relation to specific rebids would be problematic if
formal proceedings were later instituted.
AER allowed to assess compliance by reference to a generator's bidding behaviour in relation
to its entire generating portfolio
The rule change proposal states that the current bidding provisions relate to individual generating units rather
than an entire power station or generation portfolio. As such, bids and rebids can only be assessed by
reference to other bids or rebids for the same generating unit.
The proposed rule change specifically allows the AER to have regard to all bid and rebids made by a generator
or other bids or rebids in relation to which the generator has substantial control or influence.
The proposed rule change has the potential to significantly increase risk and compliance costs for generators.
As presently drafted, the rule change request raises significant concerns in relation to its structure and
workability and risks increasing uncertainty about when generators are permitted to rebid.
Through its consultation process, the AEMC will consider whether the proposed rule change promotes the
National Electricity Objective and will test both the merits and the practicalities of the proposed rule.
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Consultation Questions
1.
Do you consider late strategic rebidding to be the primary issue raised by this rule change request?
2.
Do you consider the NEM trading arrangements of five-minute dispatch and 30-minute settlement to
be relevant to the issue of late strategic rebidding? Do you have any views as to how any issues
arising could be addressed?
3.
Do you consider there to be benefits in the proposed rule to reverse the onus of proof onto
generators?
4.
5.
(a)
Do you consider that all known conditions and circumstances should be taken into
account in generator bids and rebids?
(b)
Do you consider the proposed rule to be practical and sufficiently clear as to when a
generator must rebid following a change in material conditions and circumstances?
(c)
Do you consider that rebids should only be limited to the occurrence of a significant
change in conditions and circumstances? If so, how would this be achieved in practice?
Do you consider it reasonable that all bids and rebids should be made with reference to published
AEMO data?
6.
1
(a)
What are your views on any of the options discussed above ? Do you consider any of
these options or any other options around the design of the bidding process to better
address the issues raised in the rule change request?
(b)
Are there any approaches used in electricity markets in jurisdictions overseas that
could provide insight into the development of options to address issues raised in the
rule change request?
1
This question refers to alternative options considered by the ACCC at the time the good faith rebidding rule was originally
introduced.
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Contact us
Justin Oliver, Partner
Brisbane
Mark Carkeet, Partner
Brisbane
T +61 7 3119 6332
E [email protected]
T +61 7 3119 6215
E [email protected]
Geoff Carter, Partner
Melbourne
Katrina Groshinski, Partner
Sydney
T +61 3 8608 2090
E [email protected]
T +61 2 9921 4396
E [email protected]
Michael Harrison, Partner
Sydney
Matthew Knox, Partner
Perth
T +61 2 9921 4610
E [email protected]
T +61 8 6189 7856
E [email protected]
Paul Wentworth, Partner
Sydney
Clay Wohling, Partner
Adelaide
T +61 2 9921 4801
E [email protected]
T +61 8 8233 5409
E [email protected]
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