Reconciling the irreconcilable: consistent language in the NER

ElectroNerds Gallery: Can a generator opt out of a dispatch instruction for environmental reasons?

A case study in NER complexity-

Introduction

'The Code is a lengthy and complex document… The Commission must consider whether the complexity of the Code, which may discourage entry into the NEM and thereby restrict competition in the electricity industry, is outweighed by the benefits of having a comprehensive and accurate Code'.

So the ACCC said in its final determination to authorise the National Electricity Code[1], the predecessor of the NER. The Code which they authorised was about 380 pages long, plus 91 pages of exceptions. That's just over 25% of the length of NER today (1737 pages).

This growth in density isn't anyone's fault in particular. As both the electricity system itself and the electricity market has evolved, changes have been necessary to accommodate that evolution. And as confidence in the system has grown, additional responsibilities have been conferred on Regulators and Market Managers. We also have a system for changes to the NER that is truly democratic. Anyone who wants to suggest a change in the NER can do so, and if that change is in the long term interests of consumers the rule maker, the AEMC, must make the change. The NER has been changed over 120 times in 14 years.

However, the fact that human hands, some of them belonging to engineers, some of them to regulators, and some to lawyers, have written the NER means that internal inconsistencies are an almost inevitable consequence of the complexity of the NER. 

A generator's obligation to comply with dispatch instructions

Let me take a simple example of this which has been in the Market Rules since the NEM began in 1998.

Perhaps the single most important obligation in the NER, for security of supply purposes is the obligation of a Generator to comply with AEMO's dispatch instructions.

Like a number of things in the NER, that obligation is contained in two places.

First, NER 4.9.8(a) says:

A Registered Participant must comply with a dispatch instruction given to it by AEMO unless to do so would, in the Registered Participant's reasonable opinion, be a hazard to public safety or materially risk damaging equipment.

The term 'Registered Participant' is defined to include a Registered Generator. The clause means dispatch instructions are binding on Generators unless there are risks to public safety or equipment. Simples.

However 5 pages earlier there is another Rule about a Generator's obligation to comply with dispatch instructions. NER 4.9.4(a) says that a 'Scheduled Generator' (ie most large scale generators) must not send out any energy from a generating unit 'except… in accordance with a dispatch instruction' unless: in the Generator's reasonable opinion, public safety would otherwise be threatened or there would be a material risk of damaging equipment or the environment… (emphasis added).

This particular rule is designed to prevent dispatch of a generating unit unless there is a dispatch instruction. That's logical: if units were dispatched at the whim of the generator, the electricity system would break down.

But in that context, an exception for dispatch which would risk causing damage to the 'environment' does not really make sense. A generator is more likely not to dispatch in order to prevent environmental harm. That is, it would make more sense to add 'environmental harm' to the reasons why a generator can disregard a dispatch instruction under NER 5.9.8 (a).

As the rules now stand, from time to time Generators (and maybe their lawyers) will be asked whether they are obliged to follow a dispatch instruction even if doing so will cause environmental harm. I suspect the safer legal answer is 'yes', but it would be equally valid to say 'there are two inconsistent provisions… I don't know'.

Fixing the problem

Obligations like these are at the heart of the National Electricity Market. Ideally, market participants should be able to understand them without recourse to lawyers.

Reconciling the apparent inconsistencies between these provisions is, by the standards of utilities regulation relatively straightforward, by separating out the relevant rights and obligations, and the exceptions to them. A redrafted provision might read as follows:

(a)         Except as set out in paragraph (c), a Registered Participant must comply with a dispatch instruction given to it by AEMO.

(b)         Except as set out in paragraph (c), a Scheduled Generator or Semi- Scheduled Generator may only send out energy from a generating unit in accordance with a dispatch instruction….

(c)         Despite anything in paragraphs (a) and (b):

(A)         A Registered Participant is excused from its obligation to comply with a dispatch instruction if complying with it would, in the Registered Participant's reasonable opinion be a hazard to public safety or materially risk damaging equipment; and

(B)         In addition to its rights under paragraph (c)(A), a Registered Participant which is a Scheduled Generator or Semi-Scheduled Generator:

(I)          is excused from its obligation to comply with a Dispatch Instruction; and

(II)         may send out energy from a Generating Unit contrary to a Dispatch Instruction;

if by doing so it would, in its reasonable opinion, avoid a material risk of damaging the environment.

(If some of you are non-lawyers, it's OK to have skipped over the bit before). It's enough to say that it would be possible to draft a single provision that requires a generator to send out energy if and only if it has a dispatch instruction, and then set out some exceptions to the principle.

But it isn't that simple -we're used to what we have.

However, as part of the debate before us about the redesign of the NEM and therefore the NER, simplicity is not the only object. For 20 years market participants and the people who work for them have acquired a familiarity with the workings of the NER as they are now, and as they have developed over time. It may never be possible to remove all the ambiguities and conflicting the provisions in the NER, and the removal of the apparent ambiguities would require wholesale restructuring and resequencing of the NER.

To do that would cause considerable disruption to the people who use the NER now. But the interests of incumbents who traded in pounds, shillings and pence were disrupted by the introduction of decimal currency. At least in my view, that ought not to be a bar to a clearer and more transparent set of market rules.

Mark Carkeet

[1] Australian Competition and Consumer Commission, Authorisation Numbers A40074, A40075, and A40076, at p30.