07 Nov 2013
Review of Northern Territory wholesale electricity arrangements - another NEM?
by Margaret Michaels, Barry Dunphy
A key concern is whether the Utilities Commission finds the NT electricity supply industry has developed to the point where a NEM-style market is now appropriate.
The Northern Territory Government has released the terms of reference for the Utilities Commission's review of arrangements for a possible wholesale electricity market in the Territory, which is along similar lines to the national electricity market (NEM). Consultation will take place later this year, with a final report to be produced by the end of December 2013.
Reasons for the review
The impetus for the Commission's review of the Territory's wholesale electricity arrangements is the Government's desire to increase competition in the generation and retail sectors of the electricity supply industry.
The electricity generation and supply market in the Northern Territory is currently dominated by the Government-owned Power and Water Corporation (PWC), which owns the transmission and distribution networks. PWC currently has no direct competitors in the generation sector. However, there are a number of independent power producers in the resources and processing sector which generate for their own requirements and also generate electricity under contracts with PWC.
In relation to the retail sector, despite reforms over the last decade to open up the sector to competition, PWC continues to be the primary retailer for small customers, including households and small business.
It has been argued that a reason for this lack of competition has been the absence of operational wholesale market arrangements in the Northern Territory that are comparable to arrangements in markets such as the NEM. A further impediment to competition is said to be the reliance on direct (or bilateral) contracting arrangements whereby generators are responsible for dispatching the power that their customers require, rather than a market operator.
Scope of the Commission's review
The Commission has therefore been asked to consider whether wholesale market arrangements would be more appropriate for the Territory than the current regulatory framework. In particular, the Commission has been asked to consider the applicability of the NEM and the regulatory arrangements that apply in Western Australia.
The preferred wholesale market arrangements to be recommended by the Commission are to facilitate competition among generators and retailers in the Territory's electricity systems, including by enabling the efficient entry of new competitors. The NEM is to provide a "reference point" for the Territory's future regulatory framework.
The Commission's review in context
In its consideration of the wholesale market design, the Commission is to have regard to the Government's other proposed reforms for the electricity supply industry, including greater alignment of the Territory's regulatory framework with the NEM, transfer of network regulation to the AER and adoption of the National Electricity Rules. The Commission is to initially provide recommendations regarding the design of the market and the rules that could be adopted initially in the Darwin-Katherine generation market.
The NT Government's decision to request the Commission to review the Territory's wholesale generation market should be considered in the context of a range of reforms that have applied since 2000 and which have been aimed at opening the electricity market up to competition. These reforms have included the establishment of the Commission as the independent regulator for the sector, the ring-fencing of PWC's generation, power systems control, network and retail activities, and the introduction of a regulated access regime for transmission and distribution services, which is a certified access regime under the Competition and Consumer Act 2010.
However, the relatively small scale of the NT electricity market has, at least until now, been put forward as a reason why a wholesale electricity market, along similar lines to that that operates in the NEM, was not considered feasible. It will be interesting to see whether the Commission considers that the NT electricity supply industry has developed to the point where a NEM-style market is now appropriate, or perhaps a more tailored model suitable to the Territory's circumstances will be seen to be more appropriate.
Consultation and report
It is intended that the Commission will release a draft report for public comment in December 2013 which will outline the Commission’s recommendations for the Territory's future wholesale market arrangements. The Commission has been invited to undertake consultation with key stakeholders in the Australian Energy Market Operator, PWC and other industry participants or potential participants. The Commission's final report is to be provided to the Minster by 31 December 2013.
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