Australian Energy Market Commission to outlaw ‘gaming’ by electricity generators

SOUTH Australia has won a national rule change to stop electricity generators manipulating the market to artificially create price rises that cost householders about $300 a year.

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• Legal action puts bill savings at risk
• SA power prices to surge by $150 a year, report warns

SOUTH Australia has won a national rule change to stop electricity generators manipulating the market to artificially create price rises that cost householders about $300 a year.

The so-called “gaming” of the market — based on a fluctuating price set every half-hour — has been blamed by the welfare sector for adding $300 to the average annual electricity bill because electricity companies are allowed to recoup the prices they have to pay via bills.

But artificially inflating the market price will be outlawed from this month, with a maximum penalty of $1 million, confirming a draft policy in April by the Australian Energy Market Commission.

In creating the rule change the AEMC acted on a 2013 complaint by Energy Minister Tom Koutsantonis.

“A false or misleading bid can occur when the generator changes its offer at the last minute for

no apparent reason,’’ he said.

“This prevents other generators having sufficient time to respond to the change in price, giving rise to inefficiencies and leading to a spike in wholesale electricity prices.’’

Under the pricing system, generators offer electricity at a fixed price up to $13,100 per MW/Hour to be bought by companies which onsell it to customers.

When a lot of electricity is being consumed, for example on a hot day, or not enough is being generated, such as when wind turbines are offline on a calm day, the price can spike.

The system is designed so that an unforeseen problem such as breakdown can allow generators to legitimately withdraw their offers, and then other generators can react to this. But generators can also remove power from the market at the last minute, spiking the price.

Uniting Communities energy expert Mark Henley described the process: “Say I run a gas fired generator and the wholesale price for current half-hour is $50 per mW/hour’’.

“Now I know the temperature is rising fast and demand in an hour or two is going to be much higher and my generation will be needed.

“I might think there is some minor maintenance that is needed now, so could reduce my next (offer) regarding the amount I can generate, but then say in a couple of hours I bid in my full capacity at say $500 per mW/hour.

“So suddenly I am making 10 times more as a generator.’’

South Australian Council of Social Service director Ross Womersley said there were still problems with generation in SA forcing up prices.

“The real drama we have coming around the corner is when the number of generators in the supply chain reduces, therefore intensifying the marketplace,’’ he said.

In the worst example of the market manipulation, electricity generators gained a windfall of $76 million over several hours during a heatwave in 2008, when “rebidding" they forced the wholesale price up to the then maximum $12,500 per MW/hour.

In releasing its decision this week, the AEMC found there had been no illegal behaviour to cause the rule change, but that “there is evidence on the face of it that in some cases, what appears to be deliberately late rebidding has led to additional price volatility, leading to the economic harms described above’’.

Under the change, a current rule that offers be made in “good faith” will be replaced by a ban on making “false or misleading offers’’.

Any variations to offers will need to be made “as soon as practicable”.

And companies will have to retain the records on why the offer was changed in case there is a future investigation.

Shocking electricity cost jumps

By Sheradyn Holderhead

WHOLESALE electricity prices spiked to more than 100 times the normal price three times in October, a report by the independent pricing umpire has found.

The Australian Energy Regulator yesterday reported on the incidents which were recorded on October 11, 12 and 25, as is required by law when the cost of electricity on the wholesale electricity market spikes from the usual price of around $100 per MWh to above $5000 per MWh.

The incidents are significant for consumers because the cost of high wholesale prices paid to generators is passed on to consumers by their electricity providers.

The AER report released yesterday found the incidents were caused by outages of the Heywood interconnector from Victoria and also rebidding by generators.

On 11 and 12 October, AGL was given the opportunity to set the market price because 25 MW of power had to be sourced from the Torrens Island power station.

“At 8.18pm, effective from 8.25pm, AGL rebid 60 MW of capacity at Torrens Island in both lower and raise services from low prices to $13,100 per MWh,’’ the AER report found.

AGL refused to comment on the AER’s report.

On the days in question the AER then used its powers to apply a price cap on the market back to $300 per MWh.

In a less costly incident, the price spiked at $12,400 per MWh on 25 October and the AER again reset the price to $300 per MWh.