NECA: Investigation into the events of 7 and 8 February 2001
The report of our investigation into the events of 7 and 8 February is available to download, along with the expert report to us by Burns and Roe Worley.
The events of those two days occurred against a backdrop of extreme temperatures and new record demands in both Victoria and South Australia. Low reserves had been predicted in South Australia from as early as 1 February. On the evening of 6 February, NEMMCO issued a market notice seeking a market response to a forecast reserve shortfall of around 400MW in Victoria the following day. Earlier that evening, Loy Yang Power had reported the intended shutdown of one of its 500MW units from 2.30pm the following day. The unit was scheduled to return to service two days later. Increases in forecast demand in both Victoria and South Australia the following morning saw reserve notices updated to reflect the deteriorating reserve conditions. By midday on 7 February, a reserve shortfall of around 770MW in Victoria and South Australia was also forecast for the afternoon of 8 February. NEMMCO reported no response from the market to that advice and therefore intervened by issuing a reliability direction to Loy Yang Power at 12.45pm on 7 February. The direction, effective from 1pm on 7 February until 5pm on 8 February, delayed the shutdown of the unit.
The inaccuracies in NEMMCO’s forecasts of interconnector limits, which first emerged on the evening of 6 February, affected the usefulness of NEMMCO’s price, demand and despatch forecasts. Although they did not lead directly to the direction that was issued to Loy Yang, they contributed to the uncertainty which had existed throughout the market during the morning of 7 February and which became confusion in the early afternoon following the issue of that direction and the initial failure of the ‘what if’ pricing arrangements. This in turn limited market participants’ ability to respond to unfolding events.
We welcome the improvements NEMMCO has made and is considering to its forecasting procedures. It should publish reports to the market on the accuracy of those forecasts during critical market events. Especially during such events, where discrepancies between forecast and actual limits are likely to increase trading risks for participants, NEMMCO should use market notices to alert participants to those discrepancies in real time. The market auditor should ensure that the necessary review and reporting arrangements are put in place.
Burns and Roe Worley’s conclusion is that the information reasonably available to Loy Yang Power on 6 and 7 February justified the proposed shutdown. A catastrophic failure as a result of delaying the repairs could have led to an outage conservatively in the order of a month or more, depending on the degree of investigation and modifications needed. Major changes to the operation of the plant would also have been required. Operating experience with the unit in the weeks prior to 7 and 8 February had indicated uncontrolled loss of output at load less than 460MW. Operating the unit at lower loads was not therefore a realistic option.
The initial failure of the ‘what if’ pricing arrangements was due to a software error in NEMMCO’s despatch process that was introduced as a result of an earlier, unrelated software change for which NEMMCO has implemented an interim remedy. NEMMCO should move urgently to implement a permanent remedy for that error. The market auditor should satisfy himself, and report to the market, that the remedy is satisfactory and has been fully tested. He should also report to the market on the adequacy of NEMMCO’s revised software testing procedures generally.
NEMMCO should improve its systems to allow real-time adjustments to spot prices during over-constrained despatch intervals by September at the very latest.
It would have been more appropriate for Snowy and Southern Hydros to have made use of straightforward energy rebids, rather than the "must run" arrangements. We are satisfied, however, that they had no intention to manipulate or take advantage of, but simply to manage, the evolving situation.
