ACCC releases final determination on electricity price cap

The Australian Competition and Consumer Commission has issued its final determination on amendments to the National Electricity Code dealing with the price cap* in the National Electricity Market.

Prices in the wholesale spot market normally vary between $30/MWh and $60/MWh, but can rise to $5,000/MWh, the current price cap. Prices near $5,000/MWh occur infrequently and are often due to peak demand on hot summer days or unanticipated plant failures in generators or transmission networks.

The National Electricity Code Administrator proposed to increase the level of the level of the price cap in two stages to $20,000/MWh. It argued that the higher price cap would encourage more investment in peaking generators and less demand for electricity at times of capacity shortage, thus leading to greater reliability.

However, the ACCC is concerned about the potential impact of such an increase in the price cap on customer prices and market participant risks. The market still has some way to go before it is fully competitive.

"The ACCC proposes to limit the increase in the price cap to $10,000/MWh", Mr Rod Shogren, the ACCC Commissioner responsible for electricity matters, said. "The ACCC believes that this will provide an additional incentive to promote investment in peaking plant whilst capping risk in the market at a lower level".

The ACCC will delay the increase in the price cap to April 2002 to give market participants time to put in place arrangements to accommodate the potentially greater risk arising from being exposed to increased market prices.

"Additionally, the ACCC requires more stringent market monitoring measures in the NEM. The ACCC believes this is necessary to address concerns about the impact of an increase in the price cap given current generator market power issues in the NEM", Mr Shogren said.

Copies of the ACCC's determination will be available on the ACCC web site: http://www.accc.gov.au or from Mr Rick Miles on (02) 6243 1342. 

* The price cap is known as VoLL, the value of lost load. It is a cap on dispatch prices in the NEM.