Wholesale Electricity MarketCompliance Update

14 October 2014

What this session will cover

• Our team – who we are and why we’re here

• Our approach – what we do and how we do it

• Investigation overview – what we’ve seen (2012 to 2014)

• Targeted compliance testing – what’s next (2015)

Who we are

Our team

• Kylie O’Keeffe – Group Manager

• Ben Williams – Team Leader

• Graham Miller – Senior Lawyer

• Jake Flynn – Analyst

• Alex Penter – Graduate Analyst (on rotation)

• Anne-Marie Foo – Graduate Analyst (on rotation)

Evolution of team

• Removal of automatic penalties – UDAP and DDAP

• $7.5 million (approx) in automatic penalties for the period 1 July 2011 to 30 June 2012

• Increase in compliance team since introduction of the Balancing and Load Following Ancillary Services Markets

What we do

Overview

• IMO’s core functions and powers are set out in:

Electricity Industry (Wholesale Electricity Market) Regulations

Electricity Industry (Independent Market Operator) Regulations

Wholesale Electricity Market Rules

• These include:

monitoring compliance by Rule Participants (including the IMO) with the Market Rules and Market Procedures

investigating alleged breaches

taking enforcement action

supporting Economic Regulation Authority in monitoring effectiveness of Wholesale Electricity Market and market surveillance

What we do

Monitoring

• IMO uses range of mechanisms to monitor market behaviour and compliance with Market Rules and Market Procedures:

automated spreadsheets and processes

high value focus – eg SRMC, behaviour that impacts market outcomes or confidence in the market, dispatch, outage logging, Synergy’s Balancing Portfolio, bidding behaviour and prices

voluntary compliance (ie self-reported)

investigations

periodic compliance meetings

compliance action plans

targeted compliance reviews

What we do

Investigations

• IMO must investigate alleged breaches of Market Rules and Market Procedures

IMO may require information and records from Market Participants

Market Participants must cooperate with investigation

if Market Participant does not cooperate, IMO may appoint person to investigate and provide report on alleged breach

• Warning notices

• Record keeping of investigation activities

What we do

Enforcement

• Breach of Market Rules – category A civil penalty provision - IMO may impose civil penalty – up to $20,000

• Breach of Market Rules – category B and C civil penalty provisions – IMO application to Electricity Review Board – up to $100,000

• IMO may apply to ERB for orders up to 6 years after date of contravention

• ERB may make binding orders (eg Market Participant must pay civil penalty, stop conduct, take specified action, etc)

What we do

IMO Compliance

• Self-reporting of alleged breaches

• Investigations

• Annual compliance audit

compliance of IMO’s internal procedures and business processes with Market Rules

IMO’s compliance with Market Rules and Market Procedures

IMO’s software systems and processes for software management

• Publication of Market Auditor’s report on IMO website

• Report to Minister

How we do it

Overview

• Our aim is to:

promote high levels of compliance by Rule Participants (including IMO)

achieve procedural fairness and proportionality in any enforcement action

• We do this by:

taking “coach-over-cop” approach to compliance – preferred IMO philosophy

ensuring our approach is consistent

not discriminating between Rule Participants – however, focussed on active Market Participants and Market Participants that represent a significant volume in the market

 

How we do it

Decisions to take enforcement action

• IMO will aim for balanced response that takes into account:

nature and extent of contravention

circumstances in which contravention took place

actual or potential impact on other Market Participants

actual or potential impact on security and reliability of SWIS

whether Market Participant has previously engaged in similar conduct

potential impact of civil penalty imposed or order sought from ERB on Market Participant

any other relevant factors, including maximum penalty that may be imposed by ERB

 

How we do it

Decisions to take enforcement action (cont’d)

• Other factors we may take into account are:

whether Market Participant is new to Wholesale Electricity Market

whether contravention relates to provision of Market Rules or Market Procedure that was recently implemented

whether Market Participant has effective compliance programs in place

extent to which Market Participant co-operated with IMO during investigation, and continues to cooperate with IMO in seeking to address contravention

• Self-reported breaches

How we do it

Risk assessment

• IMO’s approach to compliance is based on risk assessment

• This involves analysing obligations in Market Rules and Market Procedures and ranking them according to:

impact of contravention on Market Participants and other stakeholders

probability that contravention will occur

• Risk assessment is used to target and prioritise IMO’s monitoring and compliance activities, ensuring most efficient use of its resources

What have we seen

2012 to 2013

• IMO undertook 156 investigations of alleged breaches of Market Rules and Market Procedures by Market Participants and System Management between 1 July 2012 and 30 June 2013

• Of those investigations:

32 investigations related to IMO

93 investigations related to Market Participants

31 investigations related to System Management

What have we seen

2012 to 2013

• Top three areas of non-compliance for IMO:

adjusted settlement outcomes to avoid absurd outcomes

did not follow Rule Change process

delays in publication

• Top three areas of non-compliance for Market Participants:

non-compliance with dispatch instructions

not submitting outages properly

provision of resource plan

• Top three areas of non-compliance for System Management:

inadequate dispatch advisories

late provision of information

commissioning test plans approved outside allowable timeframes

What have we seen

2013 to 2014

• IMO undertook 108 investigations of alleged breaches of Market Rules and Market Procedures by Market Participants and System Management between 1 July 2012 and 30 June 2013

• Of those investigations:

10 investigations related to IMO

76 investigations related to Market Participants

22 investigations related to System Management

What have we seen

2013 to 2014

• Top three areas of non-compliance for IMO:

did not follow rule change process

did not follow all required manual IT steps

confidentiality

• Top three areas of non-compliance for Market Participants:

non-compliance with dispatch instructions

not submitting outages properly

failure to acknowledge operating instructions

• Top three areas of non-compliance for System Management:

inadequate dispatch advisories

late provision of information

incorrect activation of LFAS facilities

What have we seen

Constrained payments

• IMO’s ability to recover constrained on and constrained off payments

non-compliance with dispatch instructions

not submitting outages properly

• Quarterly process

• Amounts recovered:

$2.3 million (approx) for period 1 August 2012 to 30 June 2013

$1.5 million (approx) for period 1 July 2013 to 30 June 2014

• Proposed rule change

• Trending downwards from average of 26 identified non-compliances with dispatch instructions per month in 2012/13 to 16 identified non-compliances per month in 2013/14

• Bidding behaviour where Market Participant has advance notice of constraint

What’s next

Targeted testing

• Obligations to be tested:

changes to balancing submissions after gate closure

acknowledging operating instructions

• Timeframe for testing:

before 31 January 2015 – Market Participants to get ready

1 February 2015 to 31 March 2015 – IMO testing

• How will IMO test compliance:

provide guidelines on how to comply with each obligation (via email and on IMO website)

quantitative assessment of actual non-compliances

qualitative assessment of processes in place

• Results

individual feedback – April 2015

aggregated feedback – May 2015 – next Compliance Update

Key messages

• Know your obligations

• Ensure you have appropriate compliance processes and review them regularly

• IMO will continue to focus on dispatch instructions and outages and behaviours that affect market outcomes and confidence

• Compliance testing

changes to balancing submissions after gate closure

acknowledging operating instructions

Questions?

Morning Tea