NECA: Investigation into the events of 12 December 2002
We announced in our market analysis for 8-14 December last year an investigation into the events of Thursday 12 December when the Snowy-Victoria interconnector was lost for three hours. Spot prices reached some $1,700/MWh in Victoria and South Australia. NEMMCO directed-on a generator in Victoria. As a result of this major incident Victoria and South Australia were ‘islanded’, or separated electrically from the rest of the market, requiring ancillary services to be sourced locally. Ancillary services prices reached their maximum permissible level of $10,000 in both regions. The total paid for those services in Victoria and South Australia alone during this incident was over $19 million, compared to a normal average of $500,000 a week across the entire national market.
The report of our investigation is attached below.
Our report concludes that the high prices in the energy market, but also more particularly the very high prices in the ancillary services markets, were the result of increased demand for, and reduced supply of, ancillary services in Victoria and South Australia. There is a recognised need to improve the arrangements for both recruiting and charging for local ancillary services when part of a market is ‘islanded’. We intend to bring forward specific proposals for changes to the market rules to achieve improvements to those arrangements by the end of March. Although not directly relevant to the events of last December, because they were precipitated by an unintentional loss of lines, the extreme sensitivity of energy and especially ancillary services prices to network outages which this event again illustrates, further underlines the need for more and more rapid progress to establish an incentive structure to encourage transmission network service providers to take account of the effects on the energy and ancillary services markets when planning and undertaking maintenance on their networks.
Our report also notes that NEMMCO failed to follow the market rules in responding to last December’s events by not applying intervention, or ‘what if’, pricing following its direction in the energy market. As it turned out, this probably had little or no effect on the outcomes. In different circumstances, however, those effects could have been very significant.
