Wholesale Electricity Market
Compliance 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