Wem Design Summary v1-4 24 October 2012

Independent Market Operator
Wholesale Electricity Market Design Summary
24 October 2012
This document provides only a summary of the content of the Wholesale

Electricity Market Rules.
No person or organisation should act on the basis of any matter

contained in this report without considering the Wholesale Electricity
Market Rules. For the Market Rules that are currently in force under the
Electricity Industry (Wholesale Electricity Market) Regulations 2004,
please refer to the Wholesale Electricity Market Rules (and any
subsequent amendments) gazetted in the Western Australia
Government Gazette.
Note that for the purposes of reading this document defined terms from
the Market Rules, the Electricity Industry Act or Regulations have been
capitalised. In these instances the definition as provided in the Market
Rules, the Electricity Industry Act or the Regulations should be applied
when reading this document.
The Independent Market Operator disclaims any responsibility for any

liability arising from any act done or omission made in reliance on this
report.
Version 1.4 i 24 October 2012

Update History
Version Date Comments
1.2 21 September 2006 Market start
1.3 1 July 2012 Updates to reflect the introduction of the Balancing and
Load Following Markets
1.4 24 October 2012 Updates to section 4.5 (Reviewable Decisions and

Disputes) and Appendix 2
Version 1.4 ii 24 October 2012

Table of Contents
1. Introduction ....................................................................................................................................... 1
2. A Brief Overview of the Market ......................................................................................................... 3
2.1 The Market Entities................................................................................................................... 3
2.2 The Trading Mechanisms .......................................................................................................... 4
2.3 Ancillary Services ...................................................................................................................... 6
2.4 Network Control Service ........................................................................................................... 6
2.5 Prudential Obligations .............................................................................................................. 6
2.6 Classes of Facilities.................................................................................................................... 7
2.7 Market Settlement.................................................................................................................... 8
3. Market Governance ......................................................................................................................... 10
3.1 The Market Objectives............................................................................................................ 10
3.2 The Independent Market Operator (IMO) .............................................................................. 10
3.3 System Management .............................................................................................................. 11
3.4 The Market Advisory Committee............................................................................................ 12
3.5 The Electricity Review Board .................................................................................................. 13
3.6 The Economic Regulation Authority ....................................................................................... 13
4. Market Administration .................................................................................................................... 14
4.1 Market Rules ........................................................................................................................... 14
4.2 Procedures .............................................................................................................................. 15
4.3 Market Parameters ................................................................................................................. 16
4.4 Enforcement of the Market Rules .......................................................................................... 16
4.5 Reviewable Decisions and Disputes........................................................................................ 17
4.6 Budgets and Fees .................................................................................................................... 18
5. Rule Participation ............................................................................................................................ 19
5.1 Rule Participant Classes .......................................................................................................... 19
5.2 Facility Registration and Deregistration ............................................................................ 21
5.3 Prudential Requirements .................................................................................................... 22
6. Power System Security and Reliability ............................................................................................ 25
6.1 Operating States and System Management Powers .............................................................. 25
6.2 Ancillary Services .................................................................................................................... 26
6.3 Medium and Short Term Planning .......................................................................................... 27
6.4 Other Duties of System Management .................................................................................... 31
6.5 Performance of System Management .................................................................................... 31
7. The Reserve Capacity Mechanism ................................................................................................... 32
7.1 Overview ................................................................................................................................. 32
7.2 The Statement of Opportunities Report ................................................................................. 32
7.3 Capacity Credits and the Reserve Capacity Auction ............................................................... 33
7.4 Reserve Capacity Special Price Arrangements........................................................................ 38
7.5 Supplementary Capacity Auctions .......................................................................................... 38
7.6 Refunds for Non-Compliance.................................................................................................. 39
7.7 Funding the Reserve Capacity Auction ................................................................................... 39
7.8 Capacity Credit Allocation Process ......................................................................................... 40
7.9 Reserve Capacity and Generator Investment Strategies ........................................................ 41
7.10 Intermittent Loads .................................................................................................................. 42
7.11 Reserve Capacity and Generators of Capacity not Exceeding One MW................................. 43
7.12 Reserve Capacity and Demand Side Management Programs ................................................ 43
8. Network Control Service .................................................................................................................. 44
Version 1.4 i 24 October 2012

Table of Contents
9. The Energy Market .......................................................................................................................... 45

9.1 Introduction ............................................................................................................................ 45
9.2 Bilateral Contracts .................................................................................................................. 45
9.3 The Short Term Energy Market .............................................................................................. 46
9.4 The Balancing Market ............................................................................................................. 52
9.5 The LFAS Market ..................................................................................................................... 59
9.6 Energy Market and LFAS Settlement ...................................................................................... 62
9.7 Market Advisories ................................................................................................................... 65
10. Metering .......................................................................................................................................... 66
11. Settlement ....................................................................................................................................... 67
11.1 Settlement Process ................................................................................................................. 67
11.2 Settlement Timelines .............................................................................................................. 68
11.3 The Components of Settlement.............................................................................................. 69
11.4 Default .................................................................................................................................... 71
Appendix 1: Representing Intermittent Loads ....................................................................................... 72
Appendix 2: Summary of Market Activities ........................................................................................... 75
List of Exhibits:
Exhibit 2-1: An illustration of the settlement cash flows ........................................................................ 8
Exhibit 5-1: Rule Participant classes ....................................................................................................... 19
Exhibit 5-2: Classes of Facility that can be registered ............................................................................ 21
Exhibit 7-1: The Reserve Capacity Auction............................................................................................. 36
Exhibit 9-1: The Portfolio Supply Curve, Portfolio Demand Curve & STEM Bids and Offers ................. 49
Exhibit 9-2: STEM bids and offers are defined relative to bilateral contract positions ......................... 50
Exhibit 9-3: The STEM auction ............................................................................................................... 51
Exhibit 9-4: Balancing Forecast Principles .............................................................................................. 55
Exhibit 9-5: Determining the Balancing Price......................................................................................... 59
Exhibit 9-6: Sequencing LFAS Horizon and Gate Closure ....................................................................... 61
Exhibit 9-7: LFAS Horizons and Gate Closure Times............................................................................... 61
Exhibit 9-8: Verve Portfolio Balancing Re-Submissions and LFAS Horizons ........................................... 62
Exhibit 9-9: Theoretical Energy Schedule Example ................................................................................ 64
Exhibit 11-1: The Settlement Timetable ................................................................................................ 68
Exhibit 11-2: The Components of Settlement ........................................................................................ 70
Version 1.4 ii 24 October 2012

1. Introduction
A Wholesale Electricity Market (WEM) for the South West Interconnected System of Western
Australia (SWIS) commenced operation in September 20061. This market facilitates greater
competition and private investment and allows generators and wholesale purchasers of electricity
(such as retailers) greater flexibility as to how, and with whom, they sell or procure electricity. This
market includes mechanisms for:
Ensuring that adequate generation and demand-side management capacity is available to

satisfy the ever-changing demand for electricity;
Market Participants to adjust their contractual positions through a day-ahead short term
energy market (STEM);
On the day differences between contractual positions and physical outcomes to be traded
through a competitive balancing market; and
The competitive supply of the Load Following Ancillary Service (LFAS).
The objective of this document is to enable readers to gain a high level understanding of the market
design and how it operates without having to work through the Market Rules. However, only the
Market Rules can provide a complete and definitive description of the market. A copy of the most
recent version of the consolidated unofficial Market Rules is available on the following Market Web
Site: http://www.imowa.com.au/market-rules
This report is structured as follows:
Section 2 provides an introduction to the basic features of the market to set the context for
subsequent sections.
Section 3 provides a description of the market governance regime.
Section 4 presents a description of the administration of the market.
Section 5 describes the various classes of market participation along with Facility registration
requirements.
Section 6 covers power system security and reliability issues, including outage planning.
Section 7 describes the capacity mechanism.
Section 8 outlines the procurement of Network Control Services as alternatives to

transmission upgrades.
1
The Reserve Capacity procurement process began in late 2004.
Version 1.4 1 24 October 2012

Section 9 covers the energy and LFAS markets.
Section 10 provides a short description of metering issues.
Section 11 describes the settlement process.
Appendix 1 provides additional detail on the representation of Intermittent Loads, including

how meter data is allocated between the Intermittent Load, any unmetered Non-
Dispatchable Load at the same site, and any surplus generation that is registered.
Appendix 2 provides a summary of the various processes in the market, and indicates who
administers and participates in each process.

2. A Brief Overview of the Market
2.1 The Market Entities
The market comprises the following entities.
The Independent Market Operator (IMO) is responsible for the operation and development
of the Wholesale Electricity Market (WEM), including administering the rule change process.
It also conducts long term (10 year) generation adequacy planning, amongst other things, to
support the Reserve Capacity Mechanism.
System Management is the “System Operator”. It conducts short and medium term (up to
three years) system planning, including outage planning, and dispatches the power system in
accordance with the Market Rules. It also schedules Verve Energy’s generation portfolio.
A Network Operator is a party that operates, or intends to operate, a transmission or

distribution network within the SWIS and must be registered2. Network Operators can also be
Metering Data Agents - the parties that provide meter data to the IMO. Western Power is
the default Metering Data Agent if another Network Operator does not fill this function.
A Market Generator is a party that operates a generating Facility that must be registered if it
is to provide energy to the market. Subject to some exemptions in the rules, all generating
Facilities above 10 MW must be registered. Registration of smaller generating Facilities is
optional.
A Market Customer is a retailer or any other party purchasing electricity from the market for
the purpose of consumption or retail sale. Synergy is the Market Customer that supplies non-
contestable retail customers and is the supplier of last resort to the retail market.
Independent Power Producers (IPPs) are Market Generators other than Verve Energy.
Western Power3 is a Network Operator. System Management is a ring-fenced business unit

of Western Power.
Synergy is the former retail business unit of Western Power (prior to disaggregation) and
must be registered as a Market Customer. In most cases, the Market Rules apply to Synergy
as they would for any other Market Customer. The main exception is that it is the only
2
Unless System Management does not require information about the relevant network to maintain
power system security and power system reliability and no Market Participant Registered Facilities are
directly connected to it.
3
The names “Electricity Network Corporation”, “Electricity Retail Corporation” and “Electricity
Generation Corporation” are defined in legislation. The Market Rules use the trading names for these
entities which are, respectively, “Western Power”, “Synergy” and “Verve Energy”.

retailer allowed to serve customers that do not have interval meters, requiring a different
treatment of the load of these customers in settlement.
Verve Energy is the former generation business unit of Western Power (prior to
disaggregation) and must be registered as a Market Generator.4 In most cases, the Market
Rules apply to Verve Energy as they would for any other Market Generator. The main
exceptions are that:
Some of its Facilities (the “Verve Energy Balancing Portfolio”) follow a different
scheduling process; and
It is required to make its capacity available to System Management to provide Ancillary
Services.
All these entities must be registered as Rule Participants. This is automatic for System Management
and the IMO. Becoming a Rule Participant requires an entity to comply with the Market Rules. Rule
Participants that trade in the Reserve Capacity or energy market are automatically Market
Participants. A single Rule Participant may be registered in more than one participant class. Appendix
2 provides more information on the different functions of these and other entities.
2.2 The Trading Mechanisms
The market supports the following trading mechanisms:
Reserve Capacity: The primary role of the Reserve Capacity Mechanism is to ensure that
there is adequate generation and Demand Side Management (DSM) capacity available each
year to meet peak system requirements including a reserve margin. Each Market Customer is
required to contract for “Capacity Credits” to cover their share of capacity procured to cover
the total system requirement.
The IMO assigns Capacity Credits to suppliers of registered capacity. If there are insufficient
Capacity Credits to meet requirements, the IMO will run an auction to procure more so as to
cover the remaining requirements of Market Customers. Suppliers issued with Capacity
Credits are, amongst other requirements, obliged to make that capacity available to the
market and to participate in centralised outage planning. Market Customers who do not
procure sufficient Capacity Credits bilaterally are required to fund capacity procured by the
IMO. If an over-capacity situation arises, then the cost of the excess capacity is shared across
all Market Customers, irrespective of whether they hold bilaterally traded Capacity Credits or
not.5
4
Verve Energy has been given ministerial approval to act as the Market Participant for a number of
small loads. Consequently it is also registered as a Market Customer but only to the extent required to
serve these specific small loads.
5
A number of special cases exist whereby a Facility may obtain Capacity Credits through a different
process, or can have its capacity offset against the capacity requirements of a Market Customer
without actually holding Capacity Credits (see sections 7.10, 7.11 and 7.12).

Bilateral Contracts: Bilateral trades of energy and capacity occur between Market
Participants and the IMO has no interest in how these trades are formed. However, Market
Participants are required to submit bilateral schedule data pertaining to bilateral energy
transactions to the IMO each day so that the transactions can be scheduled.
The Short Term Energy Market (STEM): The STEM is a daily forward market for energy that
allows Market Participants to trade around their bilateral energy position, producing a Net
Contract Position.
Each “Scheduling Day”, the IMO collects half hour bilateral schedule data from each Market
Generators describing bilateral energy trades between them and Market Customers for each
“Trading Interval” of the following “Trading Day6”. The IMO calculates each Market
Participant’s net bilateral position for each Trading Interval from this data. Each Scheduling
Day, Market Participants also provide the IMO with supply and demand curves for each
Trading Interval of the Trading Day. The IMO uses these supply and demand curves to
determine STEM Offers and STEM Bids for each participant relative to its net bilateral
position for each Trading Interval. A STEM Offer is an offer to increase the net supply of
energy beyond the net bilateral position, while a STEM Bid is a bid to decrease the net supply
of energy relative to that position. A STEM auction is run for each Trading Interval of the next
Trading Day, determining a STEM clearing price and clearing quantities. The combined net
bilateral position and STEM position of a Market Participant describes its Net Contract
Position.
Dispatch/Balancing Process: Market Participants (other than Verve Energy in respect of its
portfolio) with registered generating or Dispatchable Load Facilities are required to provide
Resource Plans for each of their Facilities to the IMO. Resource Plans specify the expected
output of each Facility in each Trading Interval, including any self-supplied load.
Market Generators must also make Balancing Submissions for each Trading Interval,
specifying prices at which their Facilities may be dispatched and by how much. From these
submissions, the IMO compiles the Balancing Merit Order (BMO) and prepares market
forecasts for participants to review and, subject to certain limits, update their Balancing
Submission. IPPs schedule their Facilities, and System Management schedules Verve Energy’s
portfolio, in response to market forecasts.
Leading into each Trading Interval, System Management uses the most recent BMO to
determine and issue dispatch instructions to generators to meet the expected demand trend
during the interval. System Management may only depart from the BMO if that is necessary
to maintain system security and reliability criteria and in this regard may ultimately issue
Dispatch Instructions to Demand Side Programmes or Dispatchable Loads if necessary. For
that purpose, the IMO provides to System Management a Non-Balancing Dispatch Merit
6
The Trading Interval is a half hour. Each Trading Day comprises the 48 Trading Intervals from 8:00 AM.
The Scheduling Day is the 24 hour period before each Trading Day.

Order for Demand Side Programme and Dispatchable Load Facilities prepared from relevant
participants’ standing data.
After the Trading Day, the IMO determines from the final BMO and actual generation
requirements a balancing price for each Trading Interval. Generators receive (pay) this
Balancing Price for any quantity above (below) their NCP and Market Customers pay (receive)
this Balancing Price for any quantity above (below) their NCP. Generators dispatched out of
merit are eligible for constrained on or off compensation. If a Facility in the Non-Balancing
Dispatch Merit Order was dispatched by System Management, it receives (pays) its standing
data price (pay-as-bid) for deviations below (above) the relevant Resource Plan level.
2.3 Ancillary Services
Ancillary Services are essential for maintaining security and reliability of supply, thereby supporting
the energy market. For example, they regulate voltage and frequency quality and respond to
contingency events on the power system. System Management is required to procure adequate
quantities of Ancillary Services and proposes requirements for each Ancillary Service for IMO
approval.
System Management procures Ancillary Services either from Verve Energy (the default provider) or
on a contestable basis from independent providers. In the latter respect, the WEM includes a
contestable Load Following Ancillary Service (LFAS) market. LFAS compensates for differences
between expected (as dispatched) and actual requirements during each Trading Interval.
2.4 Network Control Service
A Network Control Service could be thought of as an Ancillary Service, but is treated separately under
the Market Rules. A Network Control Service is a service provided under contract to a Network
Operator by generation or Demand Side Management that can be a substitute for transmission or
distribution network upgrades. The Network Operator must advise the IMO of any Network Control
Service Contracts (NCSC) and provide System Management with details it needs for dispatch
purposes.
2.5 Prudential Obligations
Market Participants must meet prudential conditions for participating in the market. A Market
Participant must maintain credit support to cover the IMO’s estimate of the maximum amount that
the participant is likely to owe the IMO during any 70 day period within 48 months, allowing for
expected levels of Bilateral Contract coverage.
If at any time a Market Participant has inadequate credit support a Margin Call will be made by the
IMO, and the participant will be required to provide further credit support within 1 Business Day,
potentially in the form of a cash deposit. Failure to do so may result in the Market Participant being
declared to be in default. Although the IMO has the power under the Market Rules to impose
extremely firm measures, this does not preclude it from informally notifying a party of problems

much earlier than required by the Market Rules so as to avoid a Margin Call being required. Use of
this approach minimises the risk of having to declare a party to be in default.
2.6 Classes of Facilities
The following classes of Facilities can be registered in the market:
A Scheduled Generator is a generator that can be scheduled to operate at a specified level

ahead of real-time, and can be dispatched by System Management in real-time to a specified
level. Most large generating plant falls into this category.
A Dispatchable Load is a load that can be scheduled to operate at a specified level ahead of
real-time, and can be dispatched by System Management up or down relative to that level.
A Non-Scheduled Generator is generator that is either unable to be scheduled to operate at a

specified level ahead of real-time, such as a wind farm or solar generator, or is sufficiently
small to not generally require central coordination by System Management. These generators
are generally self-dispatched by their operator but System Management can request them to
reduce output in accordance with the BMO (or otherwise if necessary to ensure that system
security requirements can be met).
An Interruptible Load is a load that trips automatically in response to a frequency change. An

Ancillary Service Contract will generally fund this Demand Side Management option. Being
triggered automatically and typically for short periods, there are no pay-as-bid prices
associated with Interruptible Loads. They are paid in accordance with Ancillary Service
contracts with System Management.
A Demand Side Programme comprises of associated load(s) that are interruptible or non-
dispatchable which can be curtailed on request by a Market Customer7. A Demand Side
Programme can be used by a Market Participant to manage its exposure to market prices. If
System Management requires the curtailment of such load in the dispatch process, a pay-as-
bid price applies to the amount of load curtailed. However, Capacity Credit payments are
likely to be the primary form of compensation.
Meter data and other details are recorded for the following types of load, but these are not treated
as “Facilities” under the Market Rules:
A Non-Dispatchable Load is load that is not a Dispatchable Load or an Interruptible Load. A

large proportion of all SWIS load falls into this category.
An Intermittent Load is a load that is normally fully supplied by a generator at the same site
as the load without requiring any electricity to be supplied from a Network registered with
7
Note that a Demand Side Programme can not have a Interruptible Load already assigned Capacity Credits for
the same period associated with it. Likewise an Intermittent Load can not be associated with a Demand Side
Programme.

the IMO. In effect, it is load normally served by embedded generation. An Intermittent Load
only requires electricity from the network when its embedded generator is not fully
operational, and consequently its exposure to funding Reserve Capacity is reduced. A
Interruptible Load or Non-Dispatchable Load can simultaneously be an Intermittent Load if it
satisfies the required registration conditions. Under special circumstances the generator
serving an Intermittent Load can be at a different location (see section 7.10)
2.7 Market Settlement
The IMO is the party with which Market Participants settle WEM transactions other than the bilateral
trade of energy and capacity, with Market Participants buying energy or capacity from, or selling
energy or capacity to, the IMO. The IMO is responsible for performing settlement calculations and
for invoicing and settling with Rule Participants. Exhibit 2-1 provides a simplified view of the major
settlement cash flows.
Exhibit 2-1: An illustration of the settlement cash flows
Network Operator
Energy Energy
Flow Flow
Bilateral
Contract
Market Customer Payments Market Generator
(including
Network Capacity
Support Credits)
Service
STEM, Balancing Payments Ancillary Service
STEM & Balancing Payments
and Reserve Payments
Capacity payments
Ancillary Service The IMO Ancillary Service

Charges Charges
Network Control Reserve Capacity and Network
Service Payments Control Service Payments
for DSM
Most energy is traded outside the IMO administered market via Bilateral Contracts between Market
Customers and Market Generators. These Bilateral Contracts can have energy and capacity
components. By trading energy bilaterally, Market Customers and Market Generators can reduce
their exposure to the IMO administered energy market settlement processes. Where capacity is
traded bilaterally the IMO reduces the market capacity charges for the relevant Market Customer
and reduces the market capacity payments to the associated Market Generator.
Market Customers and Market Generators can modify their bilateral energy position through trading
in the day ahead STEM, forming a Net Contract Position (NCP). Differences between actual net
energy supplied or consumed and NCP quantities are bought and sold in the Balancing Market.

While System Management is required to procure Ancillary Services the costs of these services are
passed on to those participating in the market.
Settlement of the STEM occurs on a weekly basis8, while other transactions are settled monthly. It
may take up to 30 days after the end of a month to receive all interval meter data for a month, so
settlement for a Trading Day at the start of a month will not occur until about 70 days after that
Trading Day. Settlement adjustments will be made up to 9 months after the initial settlement
statement, allowing for resolutions of disagreements and improved meter data.
Where there is a default in payment to the IMO and credit support is inadequate to cover it, the IMO
may temporarily reduce payments in market settlement to reflect the shortfall. If the amount is not
resolved quickly then the outstanding amount will be recovered by a default levy. Default is expected
to be a very rare event.
8
This is possible because STEM settlements do not rely on metered data (which is not available in this
timeframe).

3. Market Governance
3.1 The Market Objectives
Changes to the Market Rules must be consistent with, and any policy directions given by the Minister
must not be inconsistent with, the following Market Objectives:
a) To promote the economically efficient, safe and reliable production and supply of electricity
and electricity related services in the South West interconnected system;
b) To encourage competition among generators and retailers in the South West

interconnected system, including by facilitating efficient entry of new competitors;
c) To avoid discrimination in that market against particular energy options and technologies,
including sustainable energy options and technologies such as those that make use of
renewable resources or that reduce overall greenhouse gas emissions;
d) To minimise the long-term cost of electricity supplied to customers from the South West
interconnected system; and
e) To encourage the taking of measures to manage the amount of electricity used and when it
is used.
3.2 The IMO
The IMO has the following functions:
Maintaining and developing the Market Rules.
Maintaining and developing Market Procedures relating to market operation and market
administration.
Approving Power System Operation Procedures (PSOPs) developed by System Management.
Processing applications for participation, and for the registration, de-registration and transfer
of facilities.
Assessing generation and DSM capacity adequacy over the long term.
Operating the Reserve Capacity Mechanism.
Collecting Standing Data which Market Participants are required to submit and providing this
data to System Management.
Collecting Bilateral Contract submissions.

Operating the Short Term Energy Market (STEM).
Collecting pay-as-bid balancing price data from Market Participants that are required to
submit these, forming Non-Balancing Dispatch Merit Orders based on these and forwarding
them to System Management.
Collecting Resource Plans from Market Participants that are required to submit these and
forwarding them to System Management.
Collecting Balancing Submissions from Market Participants that are required to submit and
revise these, compiling Balancing Merit Orders (BMOs) based on these, preparing and
publishing Balancing Forecasts, and forwarding BMOs to System Management.
Collecting LFAS Submissions from Market Participants that are eligible to submit and revise
these, compiling LFAS Merit Orders based on these, preparing and publishing LFAS Forecasts,
and forwarding LFAS Merit Orders to System Management.
Conducting market settlement.
Monitoring Rule Participants for compliance with the Market Rules, imposing penalties for
Market Rule breaches categorised as less serious, and reporting more serious breaches to the
Electricity Review Board.
Commissioning audits of the IMO’s and System Management’s activities under the Market
Rules. This relates especially to System Management’s performance of the dispatch and
security and reliability related processes.
Reviewing and potentially reassessing certain decisions by System Management.
Supporting the Economic Regulation Authority in its roles of market surveillance and
monitoring market effectiveness.
Publishing market information.
The IMO Board consists of three independent persons who are appointed by, and report to, the
Minister for Energy. The Minister has the power to give policy directions to the IMO in respect of the
operation of the market. Such directions would not impact on the day-to-day operations of the IMO,
but would be taken into account by the IMO in its consideration of whether changes to the Market
Rules were necessary. Any directions given by the Minister are required to be transparent and to be
consistent with the Market Objectives.
3.3 System Management
System Management is a ring-fenced entity within Western Power, and has the following functions:
Operating the power system to maintain security and reliability.

Developing and maintaining PSOPs.
Setting requirements for and planning emergency load reduction and system restart.
Determining Ancillary Service Requirements and procuring sufficient Ancillary Services to

meet these requirements.
Assessing system adequacy and security over short and medium term time frames.
Coordinating planned outages for maintenance.
Coordinating and, where applicable, conducting tests of equipment (Commissioning Tests

and Reserve Capacity Tests).
Scheduling Facilities within the Verve Energy portfolio.
Issuing Dispatch Instructions to Market Generators9 and demand side resources.
Activating LFAS providers (placing them under AGC control) in accordance with LFAS Merit
Orders.
Monitoring Rule Participants for rule breaches relating to dispatch and power system security
and reliability, and reporting its findings to the IMO.
Providing information on power system security and reliability to the IMO.
Providing data required for settlement to the IMO.
The Market Rules are the primary mechanism setting out the obligations of System Management.
While Technical Codes, developed under the Access Regime, place limits on how the power system
should be operated, the Market Rules set out System Management’s specific obligations.
3.4 The Market Advisory Committee
The Market Advisory Committee is an industry group made up of industry representatives and
convened by the IMO. It has the function of advising the IMO and System Management on issues
pertaining to proposed Market Rule and Market Procedure changes and general market operation
issues. The Market Advisory Committee consists of approximately 14-15 members appointed by the
IMO from nominated representatives of Market Generators (including Verve Energy), Market
Customers (including Synergy), Network Operators and consumers plus a member nominated by the
Minister to represent small consumers. The Minister and the Economic Regulation Authority may
both appoint representatives to attend meetings of the Market Advisory Committee as observers.
9
Instructions to Facilities within the Verve Energy Portfolio are ‘Dispatch Orders’ under the Market
Rules. Dispatch Orders reflect scheduling of portfolio resources by System Management on verve
Energy’s behalf and the overall portfolio being dispatched in accordance with the Balancing Merit
Order relative to other Facilities.

Where an issue to be addressed by the Market Advisory Committee is highly technical or specialised,
the Market Advisory Committee may decide to form a working group of industry representatives to
investigate and report back on the issue.
3.5 The Electricity Review Board
The Electricity Review Board is the primary appeals body, having the functions of:
Imposing penalties for more serious categories of breaches of the Market Rules.
Hearing appeals against IMO’s decisions pertaining to rule breaches.
Hearing claims from Rule Participants that the IMO has breached the Market Rules.
Hearing appeals against Reviewable Decisions.
At the behest of a Rule Participant, conducting a Procedural Review as to whether the IMO or
System Management has correctly followed the rules pertaining to rule changes and
procedure changes, and where appropriate over-turning rule change and procedure change
decisions by the IMO if the IMO or System Management has failed to follow the outlined
process.
3.6 The Economic Regulation Authority
The Market Rules also specify certain roles for the Economic Regulation Authority, which include:
Approving that the correct processes have been followed by the IMO in determining the
Maximum Reserve Capacity Price, Margin Values and Maximum STEM Price and Alternative
Maximum STEM Prices.
Approving efficient costs for the operation of the IMO and System Management.
Market surveillance, including in relation to market power. These activities are undertaken in
conjunction with the IMO.
Monitoring and reporting to the Minister on the efficiency and effectiveness of the market,
including the effectiveness of the IMO and System Management. Although Verve Energy is
expected to be the primary focus of market power monitoring it is possible for other
participants to have market power at particular times (e.g. high demand) or under particular
network conditions (e.g. within a constrained region).

4. Market Administration
4.1 Market Rules
The IMO and Conflicts of Interest
The IMO maintains and develops the Market Rules. The IMO is an independent body charged with
achieving the Market Objectives including through modification of the Market Rules. However, it is
recognised that in some areas there are potential conflicts of interest in the IMO having
administrative control of the rules that also govern its own practices and behaviour. The Market
Rules include a number of features to address these issues.
Any rules that relate to issues where the IMO would face a possible conflict of interest were it to
attempt to modify the Market Rules have been identified as “Protected Provisions”. The IMO is not
able to change those provisions without the Minister’s approval of the amendment.
Any decision made by the IMO to amend a Market Rule can be appealed to the Electricity Review
Board on procedural grounds. The Electricity Review Board is only able to overturn a rule change if
the IMO has not followed the correct rule change process.
The IMO has an independent Board to which the Minister is able to issue policy directions concerning
the broad development of the market. The Minister is not able to directly influence the operation of
the market and policy directions must not be inconsistent with the Market Objectives. Where the
Minister provides a direction, the IMO must develop one or more Rule Change Proposals for
consultation with industry.
The Rule Change Process
There are no limits as to who can propose a rule change. Such proposals will need to be made to the
IMO in a prescribed form, along with reasons as to why the proponent thinks the rule change is
desirable.
Upon receiving a rule change proposal, the IMO must decide whether it considers that the proposed
change warrants further investigation. The IMO must assess requests for rule changes against the
Market Objectives and practical considerations. The only appeal option is to the Electricity Review
Board, and then only in the case of process breaches by the IMO. That is, it is not possible to dispute
the merit of the rule change. This restriction is necessary to stop so called “forum shopping” whereby
parties repeatedly take the same issue to different forums.
A rule change may include an explicit wording change to the rules, or could be a more general
identification of an issue with a general proposal as to how it could be addressed. In processing a Rule
Change Proposal, the IMO develops amendments to the Market Rules to implement the proposed
changes and consults with Rule Participants on the need and form of the rule amendment.

There is a fast track rule change process for urgent rule changes or rule changes to correct manifest
errors or to address minor issues. Under the fast track process the IMO undertakes a single round of
consultation, and this process takes around 5 weeks at most. In an extreme circumstance the fast
track process could be completed in as little as a 5 Business Days
The normal rule change process includes two rounds of formal consultation, with the second round
allowing consultation on a draft report published by the IMO prior to the finalisation of the report,
and will usually take around 19 weeks. In consulting on a Rule Change Proposal, the IMO may
convene the Market Advisory Committee (and in certain situations must convene it), meet with
interested parties, procure technical advisers, or establish a technical working group drawing on
industry representatives if this is considered necessary to appropriately develop or evaluate changes.
The IMO Board makes a final decision on a rule amendment and if the rule change relates to a
Protected Provision will seek the Minister’s approval. The decision of the Minister is not subject to
appeal. The IMO’s decision and its reasons are published on the market website, together with a time
and date when accepted rule changes will come into force.
4.2 Market Procedures
The IMO develops and changes Market Procedures that relate to market operation and
administrative market matters, while System Management develops Power System Operation
Procedures (PSOPs) pertaining to areas of the market such as short and medium system planning,
security and reliability, and dispatch. However, the IMO is responsible for approving all new,
replacement and amended Market Procedures.
Market Procedures tend to have more procedural detail than the Market Rules and undergo more
frequent refinements and updates.
Any Rule Participant may notify the IMO or System Management that it considers a procedure
change may be appropriate. Where the IMO or System Management determines to not progress a
proposed change to a Market Procedure or PSOP then reasons for the decision must be published.
Both the IMO and System Management are subject to the same process for developing new
procedures or making changes to existing procedures. Once either the IMO or System Management
proposes a change, the IMO publishes a Procedure Change Proposal, requests submissions from the
public, and may convene the Market Advisory Committee. The issues addressed in the Market
Procedures can be quite technical and specialised, so the Market Advisory Committee may decide to
nominate a Working Group to consider an issue or suggestion. There are standing Working Groups
for considering IMO Market Procedure changes (IMO Procedure Change and Development Working
Group) and considering System Management PSOPs (System Management Procedure Change and
Development Working Group). Where the change relates to the IMO’s Market Procedures, the IMO
prepares a report on the Procedure Change Proposal which includes the amended wording, feedback
received on the change, together with a time and date for the new Market Procedure to come into
force. Where the change relates to System Management’s procedures, System Management
prepares the report and submits this to the IMO for approval of the new, replacement or amended
Market Procedure.

4.3 Market Parameters
The market makes use of a number of parameters, the values of which may materially change the
cost and benefits of participating in the market for some Market Participants.
The IMO sets and maintains the following price caps based on principles established in the Market
Rules:
The Maximum Reserve Capacity Price.
The Maximum STEM Price, which applies to STEM Submissions and, subject to the Facility’s
loss factor, Balancing Submissions for non-liquid fuelled capacity.
The Alternative Maximum STEM Price, which exceeds the Maximum STEM Price, applying to
STEM Submissions and, subject to the Facility’s loss factor, Balancing Submissions for liquid
fuelled capacity.
Note that the Minimum STEM Price is set at negative $1,000 per MWh under the Market Rules.
As well as defining the limits that participants can bid and offer, these prices define the most extreme
STEM and Balancing Market clearing prices that can occur. For further detail on the most up to date
market price limits refer to the IMO website.
The IMO reviews all the price caps annually and, if, after consultation with the industry and submits
proposed new values to the Economic Regulation Authority for approval. The Economic Regulation
Authority’s approval of these limits is based on whether or not the IMO has set values in a manner
consistent with requirements specified in the Market Rules. Note that in addition to this annual
review, the Alternative Maximum STEM Price is updated monthly based on changes in oil.
Network Operators are required by the Market Rules to determine for each connection point in their
network annual static Loss Factors reflecting average marginal losses. The IMO may audit this
calculation process if a participant believes that a Loss Factor is incorrect.
4.4 Enforcement of the Market Rules
The IMO monitors the compliance of Rule Participants with the Market Rules and Market Procedures.
System Management monitoring obligations are outlined in the Market Rules and include the
performance of Market Participants and Network Operators in the dispatch process and in relation to
short and medium term system security and reliability, and reports outcomes to the IMO. System
Management is also required to report any other breaches of the Market Rules and Market
Procedures of which it is aware. Rule Participants are also able to report alleged rule breaches by
System Management and other Rule Participants (excluding the IMO) to the IMO, and alleged rule
breaches by the IMO to the Electricity Review Board. The latter will be done through an independent
person nominated by the Minister.

When the IMO becomes aware of a rule breach by a Rule Participant, it must log the breach, warn the
relevant Rule Participant that it appears to be breaching the Market Rules or Market Procedures, and
investigate whether a breach has occurred. Following the investigation, the IMO may then consider
whether any enforcement action should be undertaken, which may include issuing a civil penalty or
making an application to the Electricity Review Board for an order.
The classes of civil penalties under the Regulations for breaches of the Market Rules are:
Category A for less serious offences, such as failure to provide information when required to
provide that information.
Categories B and C for more serious rule breaches, such as those involving system security or
payments.
For Category A breaches, the IMO will decide whether to impose any penalty but any decision can be
appealed to the Electricity Review Board. The IMO will investigate and report Category B and C
breaches to the Electricity Review Board. The Electricity Review Board will then decide whether a rule
breach has occurred and whether to impose any penalty. Any such decision can only be appealed to
the Courts on questions of law. Any penalties for breach of the Market Rules are subject to maximum
values set in the Regulations.
4.5 Reviewable Decisions and Disputes
In the Market Rules some decisions of the IMO and System Management are designated as
Reviewable Decisions. The Reviewable Decision process applies to certain areas in the Market Rules
where the IMO and System Management have some discretion in decisions that have a significant
effect on Rule Participants. Some of these decisions are subject to a merits review, others – to a
procedural review. If a Rule Participant wants to appeal a Reviewable Decision, it can apply to the
Electricity Review Board to have the decision reviewed. Any determination reached by the Electricity
Review Board will not be subject to appeal, except to the Courts on questions of law.
The dispute resolution process covers disputes between Rule Participants, but does not apply to
Reviewable Decisions under the Market Rules. The dispute resolution process sets out two stages to
be followed. Under the first stage the Rule Participants attempt to resolve disputes between
themselves. A Rule Participant may send a dispute notice to another Rule Participant (which may
include the IMO or System Management), and the parties to the dispute must make reasonable
endeavours to meet on one or more occasions, as necessary. If they fail to resolve a dispute between
themselves within a period agreed by all the parties, or 60 days if there was no agreed timeframe,
then the dispute must move to the second stage and the parties to the dispute must give
consideration to using independent mediation and/or arbitration to resolve the dispute. Finally the
parties may resort to litigation or other court processes.

4.6 Budgets and Fees
The Economic Regulation Authority periodically determines the respective efficient operational costs
(Allowable Revenues) of the IMO and System Management. These efficient costs effectively
represent a long run view of what it will cost to run the IMO and System Management. Every year the
IMO submits a budget to the Minister, which must be consistent with the Allowable Revenue set by
the Economic Regulation Authority. System Management’s budget, which must also be consistent
with the Allowable Revenue set by the Economic Regulation Authority, is developed through a
budgeting process with ministerial oversight. In particular, System Management’s approved budget is
based on Western Power budget as approved by the Minister in accordance with the process
outlined in the Electricity Corporations Act 2005. The IMO provides advice to the Minister on
whether System Management’s approved budget is consistent with the Allowable Revenue
determined by the Economic Regulation Authority.
The IMO recovers its budgeted costs, System Management’s costs and that portion of the Economic
Regulation Authority’s budget relating to its Wholesale Electricity Market activities through a per
MWh fees applied to generation and consumption in the SWIS.

5. Rule Participation
5.1 Rule Participant Classes
Anyone subject to the Market Rules is a Rule Participant. Since different rules relate to different types
of participants, a number of Rule Participant classes are defined, as shown in Exhibit 5-1. A Rule
Participant can belong to more than one class, except where this is explicitly restricted.
Exhibit 5-1: Rule Participant classes
Person Registration Requirements.
Owns, controls or Must register as a Network Operator, except in the following situations (in
operates a which case registration is optional):
Transmission or
The person is exempted because System Management does not
Distribution Network in
require information about the Facility, or
or connected to the
SWIS. No Market Participant Facilities are connected to it, or
The IMO has exempted the person from the requirement to register.
A person who intends to own, control or operate a network may also
register.
Owns, controls or Must register as a Market Generator unless the IMO has exempted the
operates a generating person from the requirement to register (in which case registration is
Facility with a rated optional).
capacity of greater than
A person who intends to own, control or operate such a generator may
10 MW that is
also register.
connected to a network
in the SWIS.
Owns, controls or The person has the option to register as a Market Generator but this is not
operates a generating compulsory.10
Facility, with a rated
A person who intends to own, control or operate such a generator may
capacity of less than or
also register.
equal to 10 MW, but
greater than 0.005 MW,
which is connected to a
network in the SWIS.
Sells or intends to sell Must register as a Market Customer if selling to Contestable Customers
electricity to customers unless the IMO has exempted the person from the requirement to register
in the SWIS. (in which case registration is optional).
A person who intends to sell electricity to consumers may also register.
10
If such a person also has a generating Facility with capacity over 10 MW then registration is
compulsory.

Person Registration Requirements.
Intends to enter into an Must register as an Ancillary Service Provider if not registered in any other
Ancillary Service Participant Class.
Contract with System
May not register as an Ancillary Service Provider if already registered in
Management.
another Participant Class.
Any other person who Must register as either a Market Generator or Market Customer, as
sells or purchases determined by the IMO, unless the IMO has exempted the person from the
electricity or another requirement to register (in which case registration is optional).
service contemplated
by the Market Rules to
or from the IMO.
System Management Automatically registered as System Management.
IMO Automatically registered as the IMO.
The Market Rules place the obligation to register on owners, operators and controllers of Facilities. If
more than one person is involved, and if those people reach an agreement as to which of them will
accept the obligations under the Market Rules, then the intention is that the IMO can exempt the
others from being Rule Participants under its exemption powers noted in Exhibit 5-1.
A Rule Participant must also:
Be resident in, or have a permanent establishment, in Australia.
Not be an externally administered body corporate, or under a similar form of administration

under any laws applicable to it in any jurisdiction.
Not be immune from suit in respect of the obligations of the Rule Participant under these
Market Rules.
Be capable of being sued in its own name in a court in Australia.
A Rule Participant that participates in any aspect of the Reserve Capacity Mechanism, bilateral energy
trade, the STEM, or the Dispatch/Balancing process is referred to as a Market Participant. A party that
is both a Market Generator and a Market Customer is a single Market Participant.
With the exception of the IMO and System Management, it is necessary for parties wanting to
become Rule Participants to apply to the IMO. In applying for Rule Participant status, a party must
accept the obligation to comply with the relevant Market Rules.

5.2 Facility Registration and Deregistration
The classes of Facilities that can be registered are shown in Exhibit 5-2. All of these Facilities must be
connected to the SWIS. Facility registration will not be permitted if the applicant has not already
been approved as a Rule Participant.
Exhibit 5-2: Classes of Facility that can be registered
Facility Class Definition Restrictions
Network A transmission or distribution Cannot be any other type of Facility.

asset.
Scheduled A generator that can Must be registered if above 10 MW.

Generator meaningfully have its energy
Smaller generators above 0.2 MW may
scheduled prior to real-time
also register.
and controlled in real time
relative to the scheduled level. Cannot be an intermittent generator.
Cannot be registered in any other class of
Facility.
Non-Scheduled A generator that cannot Must be below 10 MW or have

Generator meaningfully have its energy intermittent output (e.g. wind
scheduled prior to real-time. generator). Must be above 0.005 MW in
capacity.
Facility.
Dispatchable Load A load that can meaningfully Must be above 0.2 MW in capacity.
have its energy scheduled
prior to real-time.
Facility.
Interruptible Load A load, which while generally Cannot be registered in any other class of
non-dispatchable, can be Facility.
interrupted automatically
under certain conditions.
Demand Side A load(s) controlled by request Cannot be registered in any other class of
Programme from a Market Customer Facility.
which while generally non-
dispatchable, which System
Management may curtail on
request under certain
conditions with respect to
system security.

Non-Dispatchable Load is not required to be registered11, though Market Customers serving non-
Dispatchable Load will need to register the locations at which they have load.
An Interruptible Load can simultaneously be an Intermittent Load. An Intermittent Load is normally

fully supplied by a generator at the same site as the load without requiring any electricity to be
supplied from a Network registered with the IMO. In effect, it is load normally served by embedded
generation. An Intermittent Load only requires electricity from the network when its embedded
generator is not fully operational, and consequently its exposure to funding Reserve Capacity is
reduced. Under special circumstances the generator serving an Intermittent Load can be at a
different location (see section 7.10).
A specific Facility, as registered in the market, will not necessarily correspond to a single physical
generating unit. For example, a wind farm must be treated as a single Facility, while a group of
scheduled generating units at one location may be treated as a single Facility. Market Participants
may, at the time of registering a Facility, and with the IMO’s approval, aggregate Facilities. The IMO
would consult with System Management before approving aggregation of Facilities.
When considering an application for an aggregated or disaggregated Facility, the IMO will consider
factors such as control and monitoring equipment, metering of separate components, outage
scheduling requirements and any effects on power system reliability and security. For instance, the
IMO might not allow two generating units at one location from aggregating because it needs one of
those units to be explicitly schedulable for an Ancillary Service. Any registered aggregate Facility will
trade based on the net metered position of the aggregated Facility, not on the separate generation
and consumption of its components. For the purposes of allocating Spinning Reserve costs
aggregated facilities will be treated at the individual facility level.
The registration process for a Facility involves providing information on the Facility such that the IMO
can determine whether the Facility satisfies the criteria for being registered, and so that the IMO and
System Management can adjust their databases to accommodate the Facility. The registration
information is used for the purposes of trading and operating in the WEM by the IMO: and for
dispatch purposes by System Management.
A deregistration process exists where deregistration could mean the Facility is closing or being
transferred to another Rule Participant. A Facility cannot be deregistered while providing Capacity
Credits to the market though the Facility, complete with its Capacity Credits, can be transferred to
another Rule Participant.
5.3 Prudential Requirements
Market Participants are subject to prudential requirements as a fundamental requirement for

participation in the market.
There are two parameters associated with each Market Participant:
11
Though in certain special circumstances they need to be recorded within the market systems, e.g.
when associated with an Intermittent Load (see section 7.10).

Credit Limit: This limit is the maximum net amount that the Market Participant is likely to
owe the IMO within the maximum two month period between being scheduled and being
settled in the market, where this amount is not expected to be exceeded more than once in a
48 month period.
Credit Support: This is a guarantee of unconditional payment of a set level of funds to the
IMO where the Guarantor of this payment cannot be a Rule Participant and must have a
satisfactory credit rating.
Market Participants must generally12 provide Credit Support to cover their own Credit Limit. The
level of risk exposure for the IMO is a function of how much energy is traded by a Market Participant.
A Market Participant’s Trading Limit is a prudential factor multiplied by its Credit Limit. The prudential
factor is 0.87, which has been calculated by taking a ratio of the number of days before a margin call
is issued to the maximum number of subsequent days before a participant would be suspended for
non-payment. If the prudential factor were to equal one, then a margin call could only be made once
a Market Participant’s debt to the IMO reached its Credit Limit, after which the debt could continue
to increase until the participant was suspended a number of days later.
If a Market Participant is getting close to its Trading Limit they may voluntarily pay a security deposit
to the IMO as a guarantee against future payments. Thus, at any time, the outstanding amount that
a Market Participant owes the IMO is the greater of:
Zero; and
The total net amount owed to the IMO by that Market Participant at that time less any
security deposit, including amounts for which no settlement statement has yet been provided
and which therefore could be an estimate.
The amount by which a Market Participant’s trading limit exceeds the outstanding amount is the
trading margin. If the trading margin drops to zero or below, then the IMO may issue a margin call
notice to the Market Participant. The Market Participant must respond within one business day of the
margin call notice being issued to either increase its security deposit or provide more credit support
so that the trading margin returns to a positive value (i.e. the outstanding amount ceases to exceed
the trading limit).
If need be, the IMO can draw down on a Market Participant’s credit support to settle a transaction
entered into by that Market Participant.
In the event of actual settlement default, the IMO can claim a Market Participant’s credit support to
the extent required to cover the amount outstanding. If the Suspension Event is not remedied within
12
Independent bodies subject to prudential supervision or central borrowing authorities of states or
territories and with excellent credit ratings are allowed to be providers of financial guarantees, which
can count as a Market Participant’s Credit Support. If a Market Participant conforms to the
requirements to be a provider of Credit Support then it is exempt from the need to provide Credit
Support.

the time specified in the Cure Notice issued by the IMO then the IMO may issue a Suspension Notice,
which may include conditions which limit the Participants participation in the market (e.g. they may
be allowed to continue activities such as the supply of energy which offsets their debts). If a Market
Participant defaults on payment, such that the IMO has inadequate revenue to settle the market,
then the IMO will raise a default levy from all Market Participants in accordance with the settlement
rules so as to secure the funds required to complete settlement.

6. Power System Security and Reliability
6.1 Operating States and System Management Powers
System Management has the role of ensuring the maintenance of system security and reliability
within the SWIS over the short and medium term. To achieve this, System Management must operate
the power system within a technical envelope that accounts for the operating and Ancillary Services
standards in the Market Rules, PSOPs and relevant technical codes.
The powers of System Management in operating the system are based around three operating states:
A Normal Operating State, when the power system is in a secure and reliable state and
operating within normal operating ranges. In a Normal Operating State, System Management
must observe normal system security standards and operating limits, while maintaining
adequate Ancillary Services and dispatching generators, where necessary, based on the
Balancing Merit Order (covered in section 9.4) to the extent allowed by network constraints.
System Management may deviate from the BMO to avoid a High Risk or Emergency
Operating State.
A High Risk Operating State exists when operating the power system in its normal operating
range would expose the power system to a higher than normal probability of serious
consequences in the event of a generator, transmission or other equipment failure. Some
examples include a risk of interruption of gas supply, a bush fire threatening transmission
lines, or a shortage of Ancillary Services. In a High Risk Operating State, System Management
can take steps to increase the security of the power system, dispatch Facilities Out Of Merit,
cancel or defer Planned Outages and apply security limits appropriate to the High Risk
Operating State.
An Emergency Operating State exists when operating the power system in its normal
operating range would require the involuntary curtailment of load. In an Emergency
Operating State, System Management is able to cancel or defer Planned Outages, direct
Market Participants and Network Operators, and ultimately take whatever actions are
necessary to restore the power system to a Normal Operating State. Where a Normal
Operating State would not immediately be achievable System Management may take any
actions it considers required to restore the SWIS to a High Risk Operating State.
System Management determines what operating state the power system is in, and must inform the
market and the IMO of any changes in state via Dispatch Advisories described in section 9.4. System
Management provides reports to the IMO on incidents involving Emergency Operating States. If
System Management dispatches Out of Merit then they are required to advise the Market of this, and
the corresponding reason.

6.2 Ancillary Services
System Management proposes requirements for Ancillary Services, based upon standards set out in
the Market Rules. The IMO is responsible for approving these requirements. System Management is
required to procure Ancillary Services and its options for procuring them include:
In respect of Load Following, the LFAS Market (described in section 9.5).
Making use of Verve Energy’s resources (as default provider), including for LFAS if back-up
capability is required.
In respect of other Ancillary Services, if Verve Energy lacks adequate resources or the
Ancillary Services can be obtained at a lower cost, through contracting with third parties.
Any such contracting must be on a least cost basis and may involve a competitive tender.
System Management budgets the cost of procuring Ancillary Services, where budgeted costs must be
in accordance with those approved by the Economic Regulation Authority. However, System
Management does not fund Ancillary Services. Rather, the IMO recovers the costs of the Ancillary
Services from Market Participants through the wholesale market settlement systems, and uses the
revenue received to fund Ancillary Services procurement. The details and costs of the services
provided are published on the market website.
The following Ancillary Services are defined in the Market Rules:
Load Following (LFAS) is the primary mechanism in real-time to ensure that supply and
demand are continuously balanced. It compensates for variations in load and intermittent
generation relative to what System Management anticipated when issuing Dispatch
Instructions for the Trading Interval and also compensates for normal generation deviations.
LFAS is provided by generators which are capable of being regulated under centralised
Automatic Generation Control (AGC) to maintain system frequency.
Spinning Reserve is capacity held in reserve to respond rapidly should an on-line Facility
experience a sudden Forced Outage. This service can be provided by spare on-line generation
capacity, Dispatchable Loads and interruptible loads (i.e. loads that reduce automatically if
the system frequency drops).
Load Rejection Reserve is generation which can rapidly decrease output should a sudden loss
of load occurs (for example, due to system fault). This service can be particularly important
overnight when generating units can be operating at minimum loading and are unable to
decrease their output in the time frame required.
Dispatch Support ensures that voltage levels around the power system are maintained, and
includes other services required to support the security and reliability of the power system
that are not covered by other Ancillary Services.

System Restart allows parts of the power system to be re-energised by black start equipped
generation capacity following a system wide black out. Unlike other generators, black start
equipped generators can be started up without requiring a supply of energy from the
transmission network.
In addition to managing these Ancillary Services, System Management must maintain adequate
Ready Reserve. Ready Reserve is additional capacity, which may not be synchronised, that System
Management can call on to provide energy in the 15 minute to four hour period following a
contingency event. There is no additional payment for Ready Reserve as the cost of keeping the
capacity available is funded via the Reserve Capacity Mechanism (see section 7).
There are special circumstances under which Ancillary Service and Ready Reserve Requirements may
be relaxed, such as in emergency situations or where, in the case of Spinning Reserve or Ready
Reserve, the Reserve Capacity is actually being activated to provide energy following a contingency
event.
The IMO allocates the cost of Ancillary Services between Market Participants on the following basis:
The monthly cost of Load Following is allocated amongst Market Participants in proportion to
their monthly share of contributing quantity (metered load and Non-Scheduled Generation).
The monthly cost of Spinning Reserve is borne by generators in proportion to the deemed risk
that the generator imposes on the system, based on the output of the generator in each
Trading Interval during the month.
The monthly costs for Load Rejection Reserve, Dispatch Support and System Restart are
recovered from Market Customers in proportion to their monthly metered consumption.
6.3 Medium and Short Term Planning
Projected Assessment of System Adequacy (PASA)
The IMO is required to forecast generation adequacy over a period of 10 years and to ensure that
sufficient Reserve Capacity is procured. System Management assesses capacity adequacy and
undertakes availability planning over the short and medium term.
The medium-term PASA process is an integrated assessment of system security and reliability over a
rolling 36-month time horizon. The available level of generation and transmission capacity is reported
by week, with this data being updated monthly. Capacity adequacy is assessed for high, medium, and
low demand scenarios. This process is conducted in order to ensure that System Management,
Market Participants and Network Operators are informed of projected conditions on the power
system and to allow them to take appropriate actions. In particular, the information will help System
Management to form a view of the power system conditions likely to apply at different times in the
future, assisting it to schedule outages and plan the secure and reliable operation of the power
system.

The short-term PASA is similar to the medium-term PASA, but considers a three-week horizon, with
results reported for four 6-hour periods per day, and updated at least once each week, or more often
if required. This finer resolution is required to support operational planning, such as determining how
much Ancillary Service capability is required in a given part of a day and to facilitate final approval of
outages.
Market Participants and Network Operators are required to provide information to System
Management for each of the PASA horizons:
Network Operators provide information on changes to transmission capacities and ratings of

equipment, proposed outage timings, access quantities at entry and exit points.
Market Generators update their available generating Facility capacities and Ancillary Service
capabilities, including adjustments reflecting outages or Facility closure and other constraints
on supply capability. Market Generators will also provide estimates of their expected energy
output levels.
Market Consumers provide information on factors that will change the amount of energy
they purchase.
The PASA results are made available via the Market Web Site and will include:
Load scenarios used in the PASA.
Forecast total available generation capacity by six hour or weekly periods (as applicable).
Information on the timing, size and duration of expected capacity shortfalls.
Forecast transmission capacity between potentially constrained regions, under normal

conditions and some contingency scenarios, and the likelihood of constraints.
Details of planned Commissioning Tests.
Possible security problems, including fuel supply problems that could affect market or
dispatch outcomes.
Outage Planning and Scheduling
System Management compiles a list of all equipment on the power system that is required to be
subject to outage scheduling by System Management, including partial outages and de-ratings. This
list includes all transmission network Facilities, Facilities holding Capacity Credits, and any other
equipment that must be subject to System Management outage scheduling if the security and
reliability of the SWIS is to be maintained. Market Participants may request that the IMO reassess the
inclusion of their equipment on this list.
Market Participants notify System Management of their outage plans for up to three years ahead.
The notification includes details of the reason for the proposed outages, the timing and duration of

the proposed outage, potential risks with respect to the intended duration of the outage, and
contingency plans should the Facility need to be returned to service prior to the scheduled outage
completion time. Market Participants must also advise System Management of any changes to plans
previously submitted.
Based on the outage plans and the power system security and reliability criteria, System
Management forms a provisional schedule of outage plans that:
Maintains security and reliability of the power system, or if it is not possible to achieve that,
is the most prudent outage plan for managing the risks to the power system.
Shows no bias towards a Market Participant or Network Operator in accepting outages.
Most outages are normally notified to System Management well in advance of their commencement,
and typically more than a year before the event for generators. However, while participants can
notify System Management of outages until a few days before the event, System Management may
reject such applications if the submitting participant has allowed insufficient time for System
Management to assess the impact of the outage. There are requirements under the Market Rules for
Network Operators to co-ordinate outages with any impacted Market Participants.
Facilities with capacities of less than 10 MW need only inform System Management of Planned
Outages. System Management does not actually schedule those outages, but passes the information
on to the IMO as it is required in assessing compliance with Reserve Capacity Obligations and the
general availability of capacity.
Where outages are scheduled by System Management, competition between participants and the
security and reliability criteria will mean that it will not always be possible to schedule a Facility
outage at the time its operator wants the outage. If System Management cannot determine an
outage plan that accommodates the requirements of all parties, then it will first negotiate with
affected parties for up to 15 Business Days, and if no agreement is reached, it will decide which
outages are scheduled and which are not. In making such a decision, System Management must have
regard for:
Maintaining the reliability and security of the power system.
The date and time at which System Management was notified of the outage.
The urgency of any required maintenance.
The implication of rescheduling the outage.
Where System Management determines that an outage cannot occur at the time the participant has
requested, the participant may request that the IMO reassesses the decision. Such requests must be
made within ten Business Days of System Management’s decision but not later than five business
days prior to the outage commencing. Any such requests can only be on the grounds that System

Management has failed to follow the outage planning process in the Market Rules. The IMO will
consult with System Management but the IMO’s decision will be final.
If a Market Participant’s outage plan is rejected, it and System Management must work to determine
an alternative time for the outage.
Outages that are scheduled via the process in the Market Rules (“accepted outages”) cannot
commence until outage approval is granted (“approved outages”). System Management is required
to give final approval of an outage two days before outage commencement. This final outage
approval process allows System Management to manage outages close to their commencement, and
potentially delay them if the outage will endanger the power system. Given the time constraints, no
reassessment of these final outage approvals is possible, but the IMO may reassess decisions after
the event where participants allege that System Management has breached the outage approval
process in the Market Rules. Market Participants and Network Operators may also be able to
schedule Opportunistic Maintenance with System Management at short notice (e.g. on the day
before or on the day), provided System Management determines that such maintenance would not
affect system reliability or security and provided System Management has adequate time to assess
the impact of the outage.
If an outage was scheduled with System Management at least one year prior to its commencement
but was delayed or cancelled by System Management within 48 hours of its commencement then the
affected party can apply for compensation. Compensation is only payable for the additional
maintenance costs directly incurred by a Market Participant or Network Operator in the deferment or
cancellation of the relevant maintenance, and includes labour and equipment costs specifically
related to the maintenance. This compensation is funded from Market Customers based on their
monthly energy purchases. If the compensation required exceeds $50,000 then the IMO may spread
the recovery of the compensation over up to six months so as to minimise the volatility of settlement
payments by Market Customers.
Where outages are approved by System Management they are designated as Planned Outages, and
the Reserve Capacity obligations of the Market Participant are reduced during the impacted Trading
Intervals accordingly. A similar reduction applies for Consequential Outages, which are due to failure
of other components of the power system (e.g. transmission lines) that prevent a Reserve Capacity
provider from meeting its obligations. All other outages are Forced Outages. Market Participants are
obliged to inform System Management of Forced Outages as soon as practicable, and to provide
information concerning when the Facility will return to service. Market Participants will be required
to refund Reserve Capacity payments in the event their equipment suffers Forced Outages (see
section 7.6).
Commissioning Tests
Those seeking to conduct Commissioning Tests on new generators or generators returning to service
from significant maintenance must schedule those tests with System Management and complete all
required Commissioning Tests prior to the start of the relevant Capacity Year. For a new generator

that is late entering the market a Commissioning Test period of four months total duration can be
held.
6.4 Other Duties of System Management
Other duties of System Management include:
Planning and making arrangements for, and coordination of, automatic under frequency load
shedding, including a priority order designed to protect high priority loads in the event of a
supply shortage.
Maintaining plans for system restart.
6.5 Performance of System Management
The IMO coordinates investigations into major disturbances on the power system, and requires that
System Management and other relevant Market Participants provide the IMO with a report
explaining events and their actions soon after each event. These reports will be published on the
IMO website.
At least every three months System Management must provide to the IMO a report summarising all
instances of involuntary load shedding, shortages of Ancillary Services and Emergency Operating
States occurring, including details of actions taken by System Management.
System Management assists the IMO to conduct reviews of the Ancillary Service requirements and
procurement process and the process for scheduling outages. These reviews take place at least every
five years, but may be carried out more frequently if required. Market Participants and Network
Operators are able to make submissions to these reviews, and the results are public.

7. The Reserve Capacity Mechanism
7.1 Overview
The Reserve Capacity Mechanism is intended to ensure that the SWIS has adequate installed capacity
available from generators and demand-side management options at all times so as to:
Meet the expected peak demand plus a margin to cover generation outages while
maintaining minimum requirements to maintain system frequency; and
Remove the need for high and volatile energy prices that are required in markets like the
NEM to provide adequate revenue for peaking facilities and to trigger new investment.
Instead, energy prices are capped at lower levels (relative to the NEM) with the Reserve
Capacity Mechanism contributing to generator capital costs. The Reserve Capacity
mechanism may fully fund the capital costs for peaking facilities, and contribute towards a
base load unit’s capital costs.
The IMO administers the Reserve Capacity Mechanism.
Annual Reserve Capacity Requirements are specified by the IMO and published in a Statement of
Opportunities Report that considers the capacity requirements of the SWIS for the next 10 years.
Each Market Customer is allocated a share of the Reserve Capacity Requirement, called its Individual
Reserve Capacity Requirement (IRCR), and is required to secure Capacity Credits to cover that
requirement. A Capacity Credit is a notional construct under the Market Rules reflective of installed
generation capacity or Demand Side Management capacity from a Facility that has been certified by
the IMO. Each Capacity Credit is equivalent of 1 MW of Reserve Capacity, A Market Customer can
either procure Capacity Credits bilaterally from Capacity Credit suppliers, or it can purchase them
from the IMO. If the requirement for Capacity Credits is not met through bilateral trades, the IMO
may run an annual auction to procure Capacity Credits for on-sale to Market Customers.
7.2 The Statement of Opportunities Report
Each year the IMO prepares a Statement of Opportunities Report outlining projected capacity
requirements for the SWIS and projected capacity shortfalls for each of the next ten years. This
report indicates opportunities for supply and demand augmentations that would improve the
adequacy and security of the power system. The IMO does not consider transmission planning, as this
is addressed by Network Operators, but the Statement of Opportunities Report may make use of
transmission planning information provided by Network Operators.
The Statement of Opportunities report is released in June each year and is used to set the Reserve
Capacity Requirement for the “the Capacity Year” starting in October two years later.
To develop the Statement of Opportunities Report, the IMO is empowered to request information
from Rule Participants regarding their expected future system usage and available generation,

demand side and transmission capacities. The IMO also takes into account probable new projects
where appropriate.
The IMO determines the capacity required in each Capacity Year that should be sufficient to:
Meet the forecast peak demand plus a reserve margin equal to the greater of 8.2% of peak
demand or the capacity of the largest generating unit13 while being able to maintain normal
frequency control. Peak demand forecasts are calculated to a probability level that the forecast
would not be expected to be exceeded in more than one year out of ten.
Limit expected energy shortfalls to 0.002% of annual energy consumption including

transmission losses.
Both generation and demand-side options are considered in covering these requirements.
For the process of procuring Reserve Capacity, the IMO also determines an Availability Curve
including:
The MW capacity required in the SWIS for more than 24, 48 or 72 hours per year.
The minimum amount of generating capacity required to maintain system security and
reliability (i.e. so that any Demand Side Management procured for Reserve Capacity reasons is
not so large as to undermine the ability of System Management to maintain the security and
reliability of the SWIS).
7.3 Capacity Credits and the Reserve Capacity Auction
Generation and Demand Side Management Facilities capable and willing to contribute capacity must
apply to the IMO for Certified Reserve Capacity applicable to the Capacity Year. This certification
indicates the contribution of a Facility to meeting the capacity requirement in the Capacity Year, and
also bestows obligations on that Facility. The primary obligations associated with Certified Reserve
Capacity, which become binding only once the Certified Reserve Capacity is converted to Capacity
Credits, are:
For Market Generators other than Intermittent Generators, to make that capacity available to
the market, in the form of Bilateral Contract positions, STEM submissions, Balancing
submissions and capacity contracted to provide Ancillary Services, and to make any
unscheduled capacity available in real-time.
For demand side facilities, including but not limited to Demand Side Programmes,
Dispatchable Loads and Interruptible Loads, to make that capacity available in real-time if
required and subject to adequate notification being given.
13
Peak demand and reserve margin calculations account for losses and occasional demand from
Intermittent Loads (which are normally supplied by on-site generation).

For Intermittent Generators, to generate to the greatest extent possible when requested by
System Management to do so in real-time, or to reduce generation when requested by
System Management.
The exact quantity of capacity a Facility must make available may vary with ambient temperature and
the recent operation of the Facility. In addition, Facilities holding Capacity Credits must:
Submit to outage scheduling by System Management.
Submit to Reserve Capacity Tests and Verification Tests (for Demand Side Programmes).
In certifying Reserve Capacity, the IMO makes use of a range of information provided by the
applicant, historic performance data, and tests of the Facility.
As a condition of certification of Facilities that have not yet been commissioned, the IMO requires the
payment of a Reserve Capacity Security equal to about 25% of the value of the annual payments the
Facility would receive if scheduled. This security will be returned to the Market Participant if the
Facility fails to secure Capacity Credits or when it first reaches an output level that fully satisfies its
capacity obligations. If a Facility operates at a level equivalent to 90% of its Required Level in any two
Trading Intervals or the participant provides the IMO with a report from an independent expert
specifying that the Facility can operate at an equivalent level then the security will be returned at the
end of the year (provided the IMO is satisfied the Facility is in Commercial Operation). If a Facility
operates at a level equivalent to 100% of its Required Level in any two Trading Intervals during the
relevant Capacity Year then it may request its Reserve Capacity Security to be returned immediately.
If these requirements are not met during the Capacity Year then the IMO will draw down on the
security.
Market Participants can also apply for conditional certification or Early Certified Reserve Capacity
some years before the auction. The information required is the same as for the normal certification
processes. Conditional certification provides potential investors with greater certainty in securing
financing and when negotiating Bilateral Contracts. Similarly the Early Certified Reserve Capacity
process allows new generation projects with long lead times to secure Capacity Credits earlier,
providing greater certainty for investors and financiers.
Early Certified Reserve Capacity, and subsequently assigned Capacity Credits, are granted for the
applicable Capacity Year without the requirement to re-apply for Certified Reserve Capacity during
the usual certification window. Where conditional certification has been granted, when the Market
Participant applies for final certification, if no information upon which the conditional certification
was based has changed and all approvals required normally for certification are provided, then it will
automatically be certified.
The operators of all other Facilities holding Certified Reserve Capacity will, in August or September of
each year, indicate to the IMO:
How much Certified Reserve Capacity they intend to trade bilaterally.

How much Certified Reserve Capacity they intend to offer to the IMO via the Reserve
Capacity Auction.
Whether they want to terminate any Certified Reserve Capacity (e.g. because they no longer
intend to go forward with the development of a new generation project).
In determining which bilateral trades can contribute to satisfying the required Reserve Capacity, the
IMO will generally accept bilateral trades in order of decreasing availability until all trades are
exhausted or until the Reserve Capacity requirements are satisfied. However, there are a number of
additional rules imposed on this process:
The IMO is required to accept capacity from Facilities that are in service or are committed.
If the Reserve Capacity Requirement is not met from Facilities that are in service or committed,
and if multiple Facilities that are not committed have the same availability but not all are
required, then the IMO will apply the following selection criteria to determine which Facility or
Facilities will be accepted. The same criteria will be applied to determine which one of two or
more Facilities will be accepted when the Facilities are mutually exclusive (e.g. because they
will be constructed on the same site if accepted):
Facilities that are operational or committed will be accepted first
Then Facilities can demonstrate having secured financing will be accepted
Then Facilities with the greatest quantity of Certified Reserve Capacity will be accepted
ahead of Facilities with lower Certified Reserve Capacity
Then Facilities identified in Expressions of Interest will be accepted ahead of other
Facilities
And finally, if the above steps have not resolved the matter, the IMO will accept Facilities
based on the order in which they applied for Certified Reserve Capacity, including
applications for Conditional Certified Reserve Capacity.
If enough Certified Reserve Capacity is traded bilaterally to meet the Reserve Capacity Requirements
of the SWIS then no Reserve Capacity Auction will be held, and all the Certified Reserve Capacity
accepted through the bilateral trade process will be granted Capacity Credits. If more Capacity Credits
are assigned through the Reserve Capacity Mechanism than are required, the price paid by the IMO
for Capacity Credits will be scaled down. The price of Capacity Credits in this case will be determined
by spreading the theoretical total cost of required Capacity Credits over the number of Capacity
Credits that have actually been assigned.
If the total capacity traded bilaterally does not fully cover the total Reserve Capacity Requirement (or
there is a shortage in any Availability Class), then:
The bilaterally traded Reserve Capacity would be granted Capacity Credits,
The capacity difference between the Reserve Capacity Requirement and the bilaterally traded
Reserve Capacity in each Availability Class would be procured via a Reserve Capacity auction.

Any capacity procured in the auction would be granted Capacity Credits.
Each auction, if required, would be held in September as a simple tender to supply the IMO with
Capacity Credits. An offer would be made to the IMO to provide the Capacity Credits available from a
Facility at a price per Capacity Credit per year. A maximum offer price would be defined at a level
commensurate with the expected cost of a new entrant peaking plant in the SWIS. The maximum
offer price is the Maximum Reserve Capacity Price to apply in the Capacity Year for which the auction
is being held. Note that through an auction only whole facilities will be cleared, not a part of a
facility.
Exhibit 7-1 illustrates the basic Reserve Capacity Auction clearing process.
Exhibit 7-1: The Reserve Capacity Auction

Capacity Credit
Offer Price
Maximum Reserve
Capacity Price
Reserve
Capacity
Price
Required Capacity Capacity Credits Offered
Four offers are shown. Each offer represents that part of a Facility’s Reserve Capacity that is being
offered into the auction. The offers are ranked in order of price until the Reserve Capacity
requirement is covered. In this instance, the third block of capacity would be cleared in full, meaning
that more Reserve Capacity would be scheduled than is required.
In Exhibit 7-1 the grey shaded area indicates the three offers scheduled. The fourth offer, which was
priced at the maximum allowed price, would not be scheduled and consequently would receive no
payment.
Some additional rules are imposed on the auction:
There are limits on the amount of capacity that can be scheduled from sources that have
limited availability over the year. This allows such resources to be scheduled to serve peak
capacity, which has short duration, but not base-load demand. In effect, the auction is
conducted to cover the requirement of the Availability Class with the highest availability first.
Any surplus offers and offers for the Availability Class with the second highest availability are

used to cover the requirements of the second highest Availability Class, and so forth. There
are not separate prices for each Availability Class, though, with the highest priced offer
scheduled from any Availability Class setting the price.
If there are offers associated with mutually exclusive Facilities (e.g. because they are yet to be
built but will all be built on the same site) then the auction will be run for each permutation
of such Facilities, and the result used will be that which provides the capacity required at
lowest cost, or, if there is shortfall of capacity, minimises that shortfall without regard for
cost.
If the reserve requirement is exceeded by more than 100 MW, because the last source of
supply that could be scheduled was bigger than needed, the IMO would be allowed to accept
offers from a smaller, otherwise not cleared (and hence more expensive per MW) Facility in
place of a larger cleared Facility if this would reduce the overall cost of Reserve Capacity. In
this case, the normal price would still apply, with additional compensation being paid to the
Facility that offered a higher price than the clearing price but was scheduled.
Where Capacity Credits are traded bilaterally rather than being included in the auction and the
bilateral arrangement ceases during the Capacity Year, then the IMO will still pay the Facility holding
the Capacity Credit the prevailing auction price. However, a Capacity Credit assigned through an
auction is committed to the IMO for the entire Capacity Year, and cannot therefore be bilaterally
transferred to a retailer during that Capacity Year.14 The certification of Reserve Capacity offered into
an auction, but not scheduled, would terminate, as the capacity either has insufficient availability or
is not required for the Capacity Year. In these cases any Reserve Capacity Security that the IMO is
holding for the relevant Market Participant will be returned.
Once issued, those who have procured Capacity Credits via the bilateral trade process are free to
trade those Capacity Credits (i.e. the ability to use them to avoid funding Capacity Credits through the
IMO settlement process) with others. However the obligation to provide the capacity associated with
a Capacity Credit will always remain with the Facility associated with the Capacity Credit. Capacity
Credits procured by the IMO through the auction will be held by the IMO for the term of those
Capacity Credits and consequently cannot be traded again.
Normally, the obligations associated with Capacity Credits will be in effect for the 12 months from
October 1, starting in Year 3 of the Capacity Cycle for which the relevant Market Participant sought to
have its Facility certified. There are some exceptions to this:
New Facilities, that were constructed to be available for the start of the Capacity Year, will
have Capacity Credit obligations that take effect from their commissioning date, which must
be between 1 June and 1 October of Year 3 of the Capacity Cycle. This requirement assures
that these Facilities are available for the summer peak period.
14
This is required to prevent the operators of Facilities holding Capacity Credits from bidding
unreasonably high prices, in the knowledge that if they fail to be scheduled in the auction they can still
secure adequate revenue through a pre-existing and confidential option to activate a bilateral trade for
their Capacity Credits.

Facilities may be decommissioned during the two months prior to the end of the Capacity
Year without restricting their ability to provide Capacity Credits prior to their date of
decommissioning. This requirement assures that these Facilities are available for the summer
peak period.
7.4 Reserve Capacity Special Price Arrangements
A new entrant Facility that does not have Bilateral Contracts to fund its capacity but which can be
funded by selling Capacity Credits to the IMO in an auction is unlikely to enter the market based on
the Reserve Capacity Price in a single year. While that price might be high enough to cover the
Facility’s cost for the year, there is the risk that the Reserve Capacity Price in subsequent years could
be lower.
To assist new Facilities entering the market in an auction situation to finance their project without
Bilateral Contracts a Long Term Special Price Arrangement (LT-SPA) option is available. If capital costs
of at least 10% of the Maximum Reserve Capacity Price per MW are incurred in supplying new
capacity, either from an upgrade of an existing Facility or developing a new Facility, then that Facility
is eligible for a LT-SPA. This arrangement will allow the Market Participant to receive the (inflation
adjusted) auction price it earns in the first year in each year the LT-SPA applies. The duration of the
LT-SPA can be selected by the Market Participant, but must not exceed 10 years. A holder of a LT-SPA
will be required to apply to have its capacity re-certified each year, and the LT-SPA will only be paid
on the lesser of the capacity actually certified in each year and the original capacity upon which the
LT-SPA was granted.
A Short Term Special Price Arrangement (ST-SPA) will also be used to address situations where an
offer is cleared in an auction but the clearing price is less than its offer price. This could arise because
a small expensive Facility is accepted as providing a lower cost auction solution than accepting a low
cost, but large Facility. In this case, if the Facility is not covered by a LT-SPA, it will receive a ST-SPA
applicable to the Capacity Year to cover the difference between the auction price and its offer price.
As noted above, Capacity Credits sold to the IMO via the auction cannot be traded bilaterally for the
year the IMO holds the Capacity Credits. In the case of a LT-SPA the Capacity Credits can be traded
bilaterally following the Capacity Year to which the original auction related. The LT-SPA will be
suspended if a covered Facility sells the Capacity Credit bilaterally, but will resume if that bilateral
arrangement ends within the term of LT-SPA. Since capacity sold through the auction for one
Capacity Year cannot be traded bilaterally, there is no need for equivalent arrangements for the ST-
SPA.
7.5 Supplementary Reserve Capacity
If the IMO considers at any time during the six months prior to the Capacity Year that there will be
insufficient capacity available to maintain Power System Security and Reliability it may seek to
acquire additional supplementary capacity .This supplementary capacity may be priced higher than
capacity acquired through a Reserve Capacity Auction, but the contracts will have a term of not more
than 12 weeks. This auction will only be open to load reduction options, generation systems that are

not currently Registered Facilities and existing generation and load reductions options but only to the
extent that the capacity does not hold Capacity Credits in the current Reserve Capacity Cycle
Those offering to provide supplementary capacity would specify the availability restrictions on their
capacity, an availability cost, and a usage cost reflecting costs directly incurred (e.g. a stand-by
generator’s fuel cost). The IMO would schedule the offers so as to minimise the expected cost, based
on the expected number of hours for which the supplementary capacity will be required.
Those providing supplementary capacity will have their rights and obligations governed by a contract
with the IMO rather than the Market Rules. This allows supplementary capacity to be provided by
parties that are not Rule Participants. A standard Supplementary Capacity Contract exists, but the
IMO can negotiate variations to the standard conditions where this is required to secure sufficient
capacity or to minimise costs.
7.6 Reserve Capacity Refunds
Providers of Capacity Credits who fail to meet to meet their Reserve Capacity Obligation Quantity
have to pay a refund that reflects a measure of the value to the system of the capacity shortfall.
Different rates of refund apply at different times of day and at different times of year. Refund rates
are relatively small at times when the SWIS has abundant capacity and are relatively high at times
when the risk of load curtailment is higher (during summer months).
Measures are included to ensure that Capacity Credit providers will not be required to refund more
during a year than they receive through Capacity Credit income in that year. Reserve Capacity refunds
are intended to discourage non-compliance in a Trading Interval while capping the risk if non-
compliance over a long time frame is unavoidable.
These refunds will be collected in the first instance by the IMO and then rebated to all Market
Customers in proportion to their IRCRs (see section 7.7). This effectively compensates all Market
Customers for the reduction in the overall security of the system.
7.7 Funding the Reserve Capacity Auction
All Market Customers will have an IRCR equal to the share of the Reserve Capacity Requirement
allocated to them based on their expected contribution to historic system peak demand. During the
course of a Capacity Year the IMO updates IRCRs monthly. These updates take account of end-use
customers shifting between retailers, new end-use customers entering the market, and existing end-
use customers leaving the market. While the IRCR of each Market Customer changes each month, the
total of these quantities sums to the Reserve Capacity Requirement.
A Market Customer’s IRCR will typically equal its contribution to system peak load, plus an additional
reserve margin. Thus a Market Customer with a load of 100 MW at times of system peak
consumption might have an Individual Reserve Capacity Requirement of 115 MW, where the
additional 15 MW ensures that there is adequate generation available at peak times even if some

generation capacity is unavailable. Intermittent Loads are a special case and are discussed further in
section 7.10.
Market Customers who do not hold enough Capacity Credits for a given Trading Month will be
required to fund the Targeted Reserve Capacity Cost. This is the cost of Capacity Credits procured by
the IMO, including under Special Price Arrangements, up to the Reserve Capacity Requirement.
Where the IMO has procured Capacity Credits in excess of the Reserve Capacity Requirement then
the cost of the surplus Capacity Credits are recovered via the Shared Reserve Capacity Cost discussed
below. Because of Special Price Arrangements, not all Capacity Credits cost the IMO the same
amount, so the most expensive mix of Capacity Credit costs will be recovered via the Targeted
Reserve Capacity Cost.The Targeted Reserve Capacity Cost is allocated in proportion to each Market
Customer’s Capacity Credit shortfall. The purpose of this Targeted Reserve Capacity Cost is to provide
an incentive for Market Customers to contract bilaterally for capacity well before it is required, and to
contract with reliable providers.
The IMO on a monthly basis determines the Shared Reserve Capacity Cost. This cost comprises:
The cost of Capacity Credits procured by the IMO that are surplus to the requirements of the
market.
Plus the cost of Supplementary Capacity payments for that month to the extent that this is
not offset through the IMO claiming security posted by a provider of Capacity Credits that
fails to satisfy their obligations.
Less any refunds paid by Capacity Credit providers who fail to satisfy their obligations and by
Intermittent Loads.
Less any revenue beyond that required to fund Supplementary Capacity payments earned by
the IMO where it has claimed the security posted by a provider of Capacity Credits that fails
to ever satisfy its obligations.
Less any amount drawn under a Reserve Capacity Security that is to be distributed to Market
Customers, after funding any Supplementary Reserve Capacity.The Shared Reserve Capacity Cost is
allocated between all Market Customers in proportion to their Individual Reserve Capacity
Requirement. This approach is used because the components of the Shared Reserve Capacity Cost
cannot meaningfully be assigned to any individual Market Customer.
7.8 Capacity Credit Allocation Process
Capacity Credits applicable to the current Capacity Year that have been traded bilaterally between a
supplier of Reserve Capacity and a Market Customer are recognised in settlement of the wholesale
market. The benefit of such a transfer is that it reduces the payment required to be made by the
Market Customer to the IMO, and reduces the payment required from the IMO to the Reserve
Capacity supplier. This will allow the supplier and Market Customer to trade capacity at a bilaterally
agreed price and will reduce prudential requirements for the Market Customer. Market Customers

that do not have bilaterally contracted capacity are also exposed to the financial costs of procuring
additional capacity.
Following each Trading Month, the suppliers of Capacity Credits inform the IMO of which Capacity
Credits are being traded bilaterally, and with whom. Because different Capacity Credits may be
settled at different prices, e.g. because of Special Price Arrangements, the supplier of Capacity Credits
has to indicate which group of Capacity Credits is being used in a bilateral trade so the IMO knows
how much to pay for other Capacity Credits.
The IMO reviews submissions from Capacity Credit suppliers and accepts those that meet the format
requirements. However, before accepting individual transactions contained in the submission it will
check them to ensure that no Market Customer is allocated more Capacity Credits than it is required
to provide. If the IMO finds any such cases, it will notify that Market Customer and require it to
nominate which Capacity Credits it does not want to take up. This measure is designed to ensure the
Market Customers do not hold on to Capacity Credits they do not need, thus preventing others from
getting the benefit of them. The IMO will only confirm the transactions with the Capacity Credit
suppliers once this process is completed.
7.9 Reserve Capacity and Generator Investment Strategies
Holding of Reserve Capacity Auctions in September of Year 1 is to allow time for peaking plant to
enter the market based solely on the auction revenue. Base load plant is unlikely to be able to
profitably enter the market solely on Reserve Capacity revenues, so this type of plant is more likely to
trade Capacity Credits bilaterally. However, should base load plant have any spare capacity that spare
capacity can be offered into the auction to gain additional revenue.
Since Reserve Capacity Auctions are held two years prior to the obligation commencing, if an existing
Facility’s capacity is offered into the Reserve Capacity Auction but not scheduled then its owner will
have two years to assess what to do. After that time it will cease receiving Reserve Capacity
payments, but will be allowed to continue participating in the energy market. However, without a
Reserve Capacity payment, either from the auction or via bilateral trade, the Facility may no longer
be economically viable. This is an appropriate outcome, because the fact that the Facility’s capacity
has not been traded bilaterally or cleared in the auction suggests that the market can acquire new
capacity at a lower cost or does not need the additional capacity.
Pre-conditions for a new Facility to be commissioned to be certified to provide Reserve Capacity will
include evidence of network system studies and acceptance of an Access Proposal from its Network
Operator, and evidence of any necessary environmental approvals. While this may take some time to
obtain, holding a Bilateral Contract for Capacity Credits allows Market Participants to commit to
building new Facilities in the knowledge that once they have secured all necessary approvals they will
be able to secure the benefits of the Reserve Capacity regime.
As described in section 7.3, a process exists for conditional certification of Reserve Capacity for
Facilities under development so that they can have certainty as to the quantity of Capacity Credits
they will hold some years prior to the normal application time. This will facilitate financing and the

formation of Bilateral Contracts. Additionally there is the ability for a facility with a longer build time
to apply for Early Certified Reserve Capacity.
7.10 Intermittent Loads
The Market Customers serving Intermittent Loads will have to fund Capacity Credits for those
Intermittent Loads. However, Intermittent Loads will have less impact on a Market Customer’s IRCR
than other loads. The reason for this is that Intermittent Loads only need to purchase energy from
the market when the generator supplying that Intermittent Load is not available. Suppose that a
regular load of 100 MW contributes 115 MW to a Market Customer’s IRCR. In the case of an
Intermittent Load of 100 MW, its own generator covers the first 100 MW of capacity required15, so
the Intermittent Load is not required to contribute more than 15 MW to a Market Customer’s IRCR.
A Market Customer with a Intermittent Load has to pay the prevailing Reserve Capacity Price for its
Intermittent Load, unless it has procured the capacity bilaterally.
A generator serving an Intermittent Load need not generally be registered – rather the
load/generator combination is registered as a single Facility. However the IMO will assess the
generating Facility’s ability to provide capacity as if it were a Reserve Capacity provider and the
Intermittent Load cannot exceed the capacity that the IMO considers the generator has available. To
the extent that a generator has capacity beyond that required to serve the Intermittent Load, then
that extra generation capacity can be registered and can provide capacity and energy to the market
beyond that required to supply the Intermittent Load.
Generators serving Intermittent Load are effectively providing Reserve Capacity, albeit without
formally holding Capacity Credits. Consequently they have obligations. The generators are subject to
System Management outage planning, for instance. Further, if the generator is not operating then
the metered net load will increase. When this happens, and if the generator is not on a Planned
Outage, the Intermittent Load will be subject to Intermittent Load Refunds. These are like Reserve
Capacity Refunds and reflect the fact that the generator is unavailable. An Intermittent Load should
not exceed its nominated level of output (by more than a tolerance of 3%) except when its generator
is on a Planned Outage if the load wishes to avoid Intermittent Load Refunds. Note that Intermittent
Load refunds over a Capacity Year are not capped to the income received from Capacity Credit
payments (as is the case with refunds for other generation and load facilities). To the extent that
unmetered load exists at the location that is not part of the Intermittent Load, this can be registered
as Non-Dispatchable Load and any consumption beyond the Intermittent Load can be associated with
this load. This Non-Dispatchable Load would have to fund Capacity Credits like any other non-
Intermittent Load.
Appendix 1 provides additional detail on the representation of Intermittent Loads, including how
meter data is allocated between the Intermittent Load, any unmetered Non-Dispatchable Load at the
15
When assessing an application to treat a load as an Intermittent Load, the IMO will assess how much
Certified Reserve Capacity the embedded generator supplying that Intermittent Load can provide. This
must be enough to fully supply the Intermittent Load.

same site, and any generation capacity beyond that required to serve the Intermittent Load that is
registered.
7.11 Capacity Credits for new small generators
The standard Reserve Capacity processes provide for a 2-year timeline between the bilateral
trade/auction process and the commencement of the obligations associated with Capacity Credits.
This is done to allow time for new peaking generators to be installed if required. However, small
generators can be installed much more quickly. For this reason, Non-Scheduled Generators of
capacity not exceeding 1 MW can secure Capacity Credits on a shorter timeline. When such a
generator begins operating its operator can apply to the IMO for Capacity Credits from the start of
the next Capacity Year (1 October). It can reapply for Capacity Credits each year until the
commencement of the first Capacity Year for which it could have secured Capacity Credits through
the normal process since the Facility commenced operation.
7.12 Capacity Credits for Demand Side Programmes
An issue for Market Customers wishing to provide demand response to the market is that it can be
difficult to get wholesale customers to contract to provide curtailability for more than about a year
ahead of time. To accommodate this, the market allows a Market Customer to apply for a Demand
Side Programme to be assigned Capacity Credits and obligations (although it is not a physical Facility).
The Market Customer must provide sufficient evidence to the IMO for it to reasonably expect that
the capacity from the Demand Side Programme is likely to be available for the relevant Capacity Year.
Closer to the start of the Capacity Year the Market Customer will enter contracts for demand
response and then apply to the IMO to associate the relevant loads with the Demand Side
Programmes .
The Capacity Credits and obligations belong to the Demand Side Programme. System Management
will issue Dispatch Instructions to the Demand Side Programme and the relevant Market Customer is
responsible for ensuring that each of the associated loads provides the required curtailment of load.
7.13 Capacity Credits for Intermittent Generators
Capacity Credits for Intermittent Generator facilities are determined based on the output of
candidate facilities in peak Trading Intervals from years prior to the certification period. The
determination of the quantity of Capacity Credits to be assigned to these facilities relies on a measure
of demand known as Load for Scheduled Generation, which identifies the Trading Intervals where
surplus capacity is lowest and therefore the system is under greatest stress. An overview of the
calculation of LSG and the determination of Capacity Credits for Intermittent Generators is available
on the following IMO Market Web Page:
http://www.imowa.com.au/f179,2019308/LSG_help_guide_10Feb2012.pdf

8. Network Control Service

Network Control Services are services that can be provided by local generation or Demand Side
Management as substitutes for an upgrade to a transmission or distribution network. Network
Operators procure Network Control Service contracts, under the Access Code, where the generation
or Demand Side Management option is less expensive than the transmission upgrade.
Network Operators must advise the IMO and System Management of Network Control Service
contracts they have entered into, including certain settlement details. System Management may
issue real-time dispatch instructions to a Network Control Service Facility as required, within the
capacity and availability limits of the contract. A Facility providing Network Control Service must be a
Registered Facility and can participate in the energy market. However, when a Network Control
Service is dispatched by System Management, the Facility is not eligible for any constrained on or off
payments. When a Network Control Service contract is dispatched by System Management, the IMO
must advise the relevant Network Operator of the quantity and balancing market payments involved.
Any other payments under a Network Control Service contract are a matter between the Network
Operator and the contracted party.

9. The Energy Market
9.1 Introduction
The Energy Market, as used in the Market Rules, describes all mechanisms for trading energy, and
includes trades via:
Bilateral Contracts
The Short Term Energy Market (STEM)
The Balancing Market
An LFAS Market also operates in parallel to the Balancing Market.
Each of these components is described in this section.
9.2 Bilateral Contracts
Bilateral Contracts are agreements formed between wholesale market suppliers (i.e. generators) and
wholesale market consumers (i.e. retailers and directly connected loads) for the provision of energy.
These Bilateral Contracts are formed on a purely commercial basis, and the market has no role or
interest in how they are formed, or in the conditions they impose on the parties subject to those
contracts. The IMO does not operate any secondary trading market for Bilateral Contracts.
Whether a Bilateral Contract has a term of one Trading Interval or multiple years, it provides the
holders with certainty over their settlement position with respect to that transaction. To the extent
that one of the parties cannot conform to their contractual requirements, because of an outage of a
generator, transmission or network security constraints, low demand or some other situation, then
those parties will be individually liable to settle their deviations from the contract position. This
places discipline on the market to only form Bilateral Contracts that reflect a reasonable expectation
of the ability of the network to facilitate the delivery of that energy. Note that there is no concept of
physical, path dependent, transmission rights in the SWIS, rather each network user is granted a right
to inject or withdraw up to an amount of energy specified in their access contract with their network
service provider.
The holders of a Bilateral Contract must make a Bilateral Submission to the IMO on the Scheduling
Day, being the day prior to the day on which the Trading Day begins. These Bilateral Submissions
must be balanced, in the sense that the total Loss Adjusted energy to be supplied to the network
must match the total Loss Adjusted energy to be taken from the network. If a Market Participant is
both a Market Generator and a Market Customer and wishes to cover its own load with its
generation then it should include in its Bilateral Submission that it is supplying itself. The IMO allows
Bilateral Submissions to be made between 8:00 AM on the day being seven days prior to the start of
the Scheduling Day until 8:50 AM on the Scheduling Day. The information included in Bilateral
Submissions is:

The identity of the submitter
The total Loss Adjusted net energy, in MWh, to be supplied by the submitter, where energy
supplied has a positive sign
The total Loss Adjusted net energy, in MWh, assigned to each Market Participant supplied by
the submitter, where energy consumed has a negative sign
The total Loss Adjusted net energy to be supplied (as defined in the previous point) plus the sum of
the total loss adjusted net energy to be consumed by each Market Participant under that submission
must equal zero. This indicates that the submission is balanced. The loss adjustments are based on
static loss factors fixed for a year and reflecting average marginal losses between a fixed Reference
Node and each injection or off-take point in the SWIS. These are set annually by Network Operators
and published by the IMO.
Once a Bilateral Contract Submission is accepted, the energy is scheduled.
Early on the Scheduling Day, System Management produces a demand forecast for each Trading
Interval of the Trading Day and provides that to the IMO which publishes it by 8:00 AM. A report is
also produced at 8:30 AM allowing Market Participants to see the bilateral trades that impact them.
The demand forecast and the 8:30 AM report allow Market Participants to revise their Bilateral
Contract positions (by contacting the submitting Market Generator where required) prior to the
submission window closing at 8:50 AM.
An option will also be available whereby Market Participants can submit standing Bilateral
Submissions. A standing Bilateral Submission comprises a Bilateral Submission for each of the seven
days of a Trading Week (i.e., Sunday, Monday, Tuesday etc). If a Market Participant does not make a
Bilateral Submission to the IMO for a Trading Day then the IMO uses the standing Bilateral
Submission corresponding to the day of the week of the Trading Day. Market Participants are obliged
to update their standing Bilateral Submissions if they become inaccurate. Alternatively, if the
inaccuracy is only for a short period, the Market Participant can make a Bilateral Submission each day
during that period so that the standing Bilateral Submission is not used.
9.3 The Short Term Energy Market
Outline
The Short Term Energy Market (STEM) is an energy-only forward market operated by the IMO on the
Scheduling Day to facilitate trading around Bilateral Contract positions. The STEM is run for every
Trading Interval of the Trading Day, and determines a single clearing price for each Trading Interval as
well as the quantities that participants have been cleared to sell to or purchase from the IMO. The
auction is designed so that the IMO purchases the same amount of energy it sells, so that it has no
net exposure.
The STEM schedules are contracts between suppliers and the IMO and between the IMO and
consumers. If a Market Participant has made a Bilateral Submission indicating that it will supply 100

MWh of energy, and then the IMO purchases 10 MWh from it in the STEM, then the net bilateral
position of the Market Participant is to supply the market with 110 MWh.
The primary role of the STEM is to provide a mechanism for economic energy trade between Market
Participants. This allows those trading under Bilateral Contracts to change their position, while
allowing those not trading under Bilateral Contracts to take a position.
Participation
Participation in the STEM is open to all Market Participants, but is not compulsory. However, those
Market Participants operating non-intermittent generators that hold Capacity Credits are required to
make adequate energy available to the market to cover their Reserve Capacity contract obligations.
STEM Submissions
STEM Submissions are made to the IMO between 9:00 AM and 9:50 AM of each Scheduling Day.
Accepted submissions will be used in the STEM auctions run between 10:00 AM and 10:30 AM.
To aid Market Participants in forming their STEM Submissions, the IMO will by 9:00 AM on the
Scheduling Day report for each Trading Interval of the Trading Day:
the total demand to be supplied under Bilateral Contract;
the forecast demand; and
information on the Reserve Capacity available (including information on outages).
A standing STEM Submission option exists for STEM Submissions. As for standing Bilateral
Submissions these apply for each of the 7 days of a Trading Week and will be used if no STEM
Submission is made. Market Participants are obliged to update their standing STEM Submissions if
they become inaccurate. Alternatively, if the inaccuracy is only for a short period, the Market
Participant can submit a STEM Submission each day during that period so that the standing STEM
Submission is not used.
One of the features of STEM Submissions is that liquid fuelled generation can be offered at a higher
price than non-liquid fuelled generation and at the same price as bids for demand. If a STEM
Submission included a single offer curve to sell and a bid curve to buy relative to a Bilateral Contract
position, then it would not be transparent as to what price each individual generator was offered at
each level of output. To overcome this, Market Participants must offer their entire supply and
consumption capacity in the STEM Submission if the form of a generation Portfolio Supply Curve and
a Portfolio Demand Curve. From these curves, the IMO generates offers to buy energy and bids to sell
energy relative to the net bilateral position of the Market Participant.
A STEM Submission for a Trading Day comprises the following information:
A Portfolio Supply Curve for each Trading Interval of the Trading Day. A Portfolio Supply Curve
is made up of price-quantity pairs where the cumulative quantity offered represents all the

energy being offered to the market from the Market Participant’s generation resources. If the
Market Participant is a Market Customer only then a zero quantity must be entered. If this
portfolio is made up of X MW of Facilities operating on non-liquid fuel (e.g. gas or coal) and Y
MW of Facilities operating on liquid fuel (e.g. distillate or oil) then the first X MW of the supply
curve must contain prices less than the Maximum STEM Price while the last Y MW must contain
prices less than the Alternative Maximum STEM Price. All prices must be greater than the
Minimum STEM Price and the cumulative quantity of supply offered must increase with
increasing price.
A Portfolio Demand Curve for each Trading Interval of the Trading Day. A Portfolio Demand
Curve is a demand curve made up of price-quantity pairs where the cumulative quantity bid
represents all the energy that the Market Participant might potentially purchase from the
market. If the Market Participant is a Market Generator only then a zero quantity must be
entered. All prices must be greater than the Minimum STEM Price and less than the Alternative
Maximum STEM Price and the cumulative quantity of energy consumption must increase with
decreasing price.
A Fuel Declaration. This states what fuel each dual fuelled generator was assumed to be
using when forming the Portfolio Supply Curve. This information is provided to System
Management and is also used for market monitoring purposes.
An Ancillary Service Declaration. Prior to the STEM Submission process commencing each
day, System Management advises Ancillary Service providers (via the IMO) of the capacity
they should hold out of the STEM for each Trading Interval so as to keep that capacity
available for Ancillary Service provision. Market Participants who are providers of Ancillary
Services must declare for each Trading Interval how much of the required quantity is
assumed to be provided by liquid fuelled generation and how much is assumed to be
provided by non-liquid fuelled generation. This information serves to excuse the Market
Participant from the Reserve Capacity obligation to offer capacity into the STEM.
An Availability Declaration. Market Participants must declare for each of their generators the
greater of maximum energy the Facility could produce less the amount assumed for it in the
participant’s Portfolio Supply Curve or zero. The maximum energy calculation takes account
of the Facility’s Standing Data, commitments to provide Ancillary Services or unavailability
due to an outage (provided the outage has been reported to the IMO). This information is
used for market monitoring.
The various declarations allow the IMO and regulatory bodies to see what assumptions went into
forming the Portfolio Supply Curve. To the extent that actual behaviour is observed to deviate from
the declarations then this may flag the need for an investigation of the incident (though it does not
necessarily mean that the Market Participant has done anything wrong).
Establishing STEM Offers and Bids
Given a Market Participant’s Portfolio Supply Curve, Portfolio Demand Curve, and Net Bilateral
Position, the IMO can deduce the Market Participant’s STEM Offers and STEM Bids.

The top two curves in Exhibit 9-1 illustrate a Market Participant’s Portfolio Supply Curve and Portfolio
Demand Curve for a Trading Interval. The bottom curve illustrates how the IMO forms the STEM Bids
and STEM Offers.
Exhibit 9-1: The Portfolio Supply Curve, Portfolio Demand Curve & STEM Bids and Offers
Portfolio Supply Curve Portfolio Demand Curve

Alternative
Max STEM Max STEM Price
Price
Liquid Fuelled Capacity
0 A Max 0 B Max
Supply Consumption
Capability Capability
STEM Bids and STEM Offers Alternative

Max STEM Price
STEM Bid STEM
Offer
Max 0 A-B Max
Consumption Net Bilateral Position Supply
Capability Capability
Some points to note about the Portfolio Supply Curve and Portfolio Demand Curve in Exhibit 9-1.
Although not explicitly shown, the minimum price that can be offered is the Minimum STEM
Price.
The shaded area of the Portfolio Supply Curve shows the capacity that is liquid fuelled and
which can therefore be offered up to the Alternative Maximum STEM Price.
When the Market Participant formed its Portfolio Supply Curve it expected quantity A to be
traded under Bilateral Contracts. Likewise, when it formed its Portfolio Demand Curve it
expected quantity B to be traded under Bilateral Contracts. The Market Participant does not
tell the IMO the values of A and B, but it does need to be aware of the quantity (i.e. the level
of contract coverage) for each portfolio so that it can ensure that its price-quantity pairs are
consistent with its net bilateral position. The short dotted horizontal lines centred on points A
and B indicate the price corresponding to the net bilateral position (A-B) in the bottom curve.
If the IMO is to produce STEM Offers and Bids that match the Market Participant’s
expectation then the Market Participant must ensure that:
o Demand not traded bilaterally is bid at a price lower than that corresponding to the
net bilateral position.
o Generation not traded bilaterally is offered at a higher price.

The bottom part of Exhibit 9-1 shows an individual Market Participant’s STEM Offers and Bids relative
to its Net Bilateral Position.16 The IMO forms the lower curve in Exhibit 9-1 by determining the net
quantity of energy that the Market Participant is willing to provide at every possible price. Having
formed such a curve, the IMO identifies the quantity corresponding to the net Bilateral Position.
Relative to this point, everything with a higher price is a STEM Offer and everything with a lower price
is a STEM Bid.
Each Market Participant will have its own set of STEM Offers and Bids. Different Market Participants
will have different prices associated with their Net Bilateral Positions. This is illustrated for three
Market Participants in Exhibit 9-2.
Exhibit 9-2: STEM bids and offers are defined relative to net bilateral contract positions
Price ($/MWh)
Participant A
Participant B
Participant C
STEM Bids STEM Offers

Net Bilateral Position
The Net Bilateral Positions of the three participants shown in Exhibit 9-2 will all be different. We
cannot tell from Exhibit 9-2 whether each of the participants is solely a generator, solely a consumer
or some mix of the two. Thus:
Any of the participants could be a generator only with a positive Net Bilateral Position
indicating it is a net supplier. Its STEM Bids would reflect a decrease in generation while its
STEM Offers would reflect an increase in generation.
16
Where a Market Participant is both a Market Generator and a Market Customer then it has only one
Net Bilateral Position. It does not have a separate Net Bilateral Position as a Market Customer from
that as a Market Generator. In defining its STEM Offers and Bids relative to that position it must
configure its Portfolio Supply Curve and Portfolio Demand Curve to produce the desired STEM Offers
and Bids.

Any of the participants could be a load only with a negative Net Bilateral Position indicating it
is a net consumer. Its STEM Bids would reflect an increase in consumption while its STEM
Offers would reflect a decrease in consumption.
Any of the participants could be both a supplier and a consumer, in which case its Net
Bilateral Position could be positive or negative. Its STEM Bids would reflect a combination of a
decrease in generation and an increase in consumption while its STEM Offers would reflect a
combination of an increase in generation and a decrease in consumption.
In the discussion that follows we assume that Participant A is a generator only. We do not need to
know what the nature of Participants B and C are.
The three participants are unlikely to have exactly the same expectation as to what the STEM price
will be. We see that Participant A expects a relatively high price while Participant C expects a
relatively low price. Because Participant A expects a high price, it is prepared to pay a high price
under its STEM Bid to buy out of its contract position, and hence avoid the need to run expensive
generation. Participant C expects a lower price. Its STEM Offers are at relatively low prices because it
has lots of low cost under-utilised generation capacity. It is apparent that a result of the STEM auction
should be that some of Participant A’s STEM Bids are accepted, with its generation being reduced as a
result, with Participant C’s lower cost STEM Offers being utilised to replace that generation.
STEM Auction
To see how the auction works, we must form all the STEM Offers into one aggregate offer, and all the
STEM Bids into one aggregate bid. In Exhibit 9-2 the STEM Bids are shown as a reduction in net supply
relative to the Net Bilateral Position as prices fall but in Exhibit 9-3 the bid curve is reversed as it
represents an increase in gross demand as prices fall.
Exhibit 9-3: The STEM auction
Price ($/MWh)
Alternative Maximum
STEM Price
STEM
Clearing
Price
Quantity (MWh)
Minimum STEM
Price

Exhibit 9-3 shows the same information as is shown in Exhibit 9-2, but the information has been re-
organised to show the point where the total STEM Bids accepted equals the total STEM Offers
accepted. It is apparent that the first step of Participant C’s STEM Offer is fully scheduled, being used
to offset the energy reduction caused by accepting all of Participant A’s STEM Bids and some of
Participant B’s STEM Bids.
The point where the curves cross defines the market clearing STEM solution. The STEM clearing price
is shown. All offers to sell with lower offer prices and all bids to buy with higher bid prices are
deemed scheduled in the STEM. The STEM is designed to match supply with demand while supplying
the maximum possible quantity of energy at the lowest possible price in all situations. Bids and offers
with prices equal to the STEM price will be subject to additional tie breaking rules. Note that the
STEM price can be negative.
The example illustrated above shows that the STEM clearing price would have a reasonable value
even if no Portfolio Demand Curve were submitted to the STEM Auction. This is because, as shown in
Exhibit 9-1, the supply curves for generators for levels below their Net Bilateral Position will be
converted to STEM Bids. Even if no energy was scheduled in the STEM, the price would still have to
be between the cost of the highest priced STEM Bid and the lowest priced STEM Offer, and this
difference will normally only be a small amount (e.g. a few cents per MWh). The STEM auction
process will select the lowest price.
Those scheduled in the STEM will be required to settle the amount they are scheduled for with the
IMO at the STEM clearing price. That is, net suppliers will be paid the STEM price and net consumers
must pay the STEM price.
Once the STEM has been solved, each Market Participant will have a Net Contract Position equal to
its Net Bilateral Position as modified by its net purchase or sale in the STEM.
9.4 The Balancing Market
Outline
The Balancing Market accounts for differences between day-ahead Net Contract Positions,
established after the STEM process, and actual outcomes. This is achieved through:
Price-based dispatch of Facilities to match supply to demand; and
Settling participant’ differences from their Net Contract Positions at a common Balancing Price.
Only participants that deviate from their Net Contract Position are exposed to the Balancing Price.
Deviations can occur for physical reasons (higher or lower than expected demand, generator outages
etc) or for market reasons (lower priced generation being dispatched in preference to higher priced
generation).

Participation in the Balancing Market
Participation via price-based dispatch in the Balancing Market is mandatory for generating Facilities
with a sent out capacity of 10 MW or more. These Facilities must meet certain technical and
communication criteria regarding their ability to receive, confirm and respond to electronic Dispatch
Instructions from System Management. The IMO may impose conditions on Facilities that do not
meet these requirements, including smaller Facilities, regarding their participation in the Balancing
Market. For example, requiring that quantity in the Facility’s Balancing Submissions must be priced at
the Price Caps17. Note also that a Facility with a sent out capacity of 10 MW or more that does not
comply with the Balancing Facility requirements is ineligible to receive Capacity Credits.
Resource Plans
The first step in the operation of the Balancing Market is the submission of Resource Plans. Resource
Plans must be submitted to the IMO by 12:50 PM on the Scheduling Day. The Market Rules also
provide for standing Resource Plans.
IPPs must prepare Resource Plans indicating for each Trading Interval of the Trading Day how they
expect to operate each of their Scheduled Generator Facilities to match their Net Contract Position
plus any self-supplied load less any known shortfall relative to their Net Contract Position. Resource
Plans must also indicate intended synchronisation and de-synchronisation times. Resource Plans
must also be submitted for Dispatchable Load Facilities.
Verve Energy is also required to submit Resource Plans for any Scheduled Generator Facilities which
it elects to operate on a standalone basis outside its Balancing Portfolio. If Verve Energy does elect to
operate a Facility on a standalone basis18, then for balancing purposes that Facility is treated as
though it were an IPP Facility.
A Resource Plan specifies for each Trading Interval a target MW level and, if that is different to the
MW target at the end of the previous interval, the rate at which the Facility will ramp to the target
level.
The IMO provides Resource Plans to System Management.
Resource Plans enable System Management, along with forecasts of intermittent generation and
system demand, to prepare an initial Dispatch Plan for the Verve Energy Portfolio and to assess any
potential system security implications. The IMO also provides participant Fuel Declarations to System
Management at 1:30 PM each Scheduling Day.
17
The Minimum STEM Price or the Alternative Maximum STEM Price.
18
The Rules provide for Verve Energy conduct one 1 month trial of a Facility on a standalone basis before
deciding whether to permanently operate the Facility on a standalone basis (subject to System
Management and IMO agreement).

Verve Energy Dispatch Plan
The Verve Energy Dispatch Plan covers how Facilities within the Verve Energy Portfolio will be
scheduled to meet expected generation requirements not covered by Resource Plans and Ancillary
Services requirements. In preparing the Verve Dispatch Plan, System Management uses dispatch
guidelines supplied by Verve Energy including daily energy/fuel constraints, the order in which
Facilities within the Portfolio are to be scheduled, including commitment/de-commitment, and plant
technical capabilities and constraints. System Management must provide the initial Dispatch Plan for
a Trading Day to Verve Energy by 4:00 PM on the Scheduling Day (2 hours before Verve Energy is
required to make its first Balancing Submission for the following Trading Day).
Balancing Submissions
By 6:00 PM on the Scheduling Day, Market Generators must present Balancing Submissions to the
IMO representing the available capacity of each of their Facilities (or, for Verve Energy, its Portfolio).
A Balancing Submission is a series of Price-Quantity Pairs for a Trading Interval representing
quantities the participant is prepared to have a Facility dispatched in the interval if the Balancing
Price exceeds the level specified by the participant subject to the Ramp Rate Limit for the Facility (or
the Verve Energy Portfolio). Non-Scheduled Generators must submit a single price at which they are
prepared to have the Facility dispatched downwards.
The prices which participants specify in Balancing Submissions must:
Not be less than the Minimum STEM Price or greater than the Maximum (or Alternative
Maximum) STEM Price.
Not exceed their reasonable expectation of the Facility’s short run marginal cost of generating
the associated quantity when such behaviour relates to market power.
Balancing Merit Order and Balancing Forecast
The IMO then prepares a Forecast Balancing Merit Order by loss factor adjusting prices in Balancing
Submissions to a reference location (Muja)19 and stacking all of the quantities from Balancing
Submissions in their loss factor adjusted price order.
The IMO then prepares Balancing Forecasts along the lines indicated in Exhibit 9-4 using demand and
Non-Scheduled generation (e.g. wind) forecasts20 provided by System Management and the Forecast
Balancing Merit Order21. The figure shows in stylised form how the forecast Balancing Price and
quantities are determined with reference to the intersection of forecast overall generation
requirements and the Forecast Balancing Merit Order. The quantities in Balancing Submissions which
are expected to be dispatched are shown as shaded blocks. Multiple blocks can relate to the same
19
Verve Energy Portfolio submission prices are already expressed at the reference node.
20
For unscheduled generation quantities in the Forecast Balancing Merit Order, the IMO inserts the
Facility’s forecast quantity at the price submitted by the participant.
21
Being a forecast, this process ignores plant Ramp Rate Constraints.

Facility as illustrated, for example, by the four shaded blocks labelled A in Exhibit 9-4 relating to
submissions for the same Facility. The sum of the widths of each of the shaded A blocks indicates the
amount which Facility A is forecast to generate in the Trading Interval.
Exhibit 9-4: Balancing Forecast Principles
Price ($/MWh)
Forecast BMO
Forecast
Balancing
Price
AA Submitted
A Quantity (MW)
A BC
Forecast
Requirement
As illustrated in Exhibit 9-4, for quantities B and C, it is possible for submission prices to be tied in the
Balancing Merit Order. To determine the order of these quantities in the Balancing Merit Order, the
IMO assigns a random number each day to each Balancing Facility, i.e. a tie-break mechanism.
The IMO then publishes to each Market Participant the quantity which each of its Facilities (and for
Verve Energy, its Portfolio) are expected to generate in each Trading Interval along with the forecast
Balancing Price.
The IMO also provides the Forecast Balancing Merit Order, but without prices, to System
Management. This enables System Management to plan for dispatch, including reviewing the
quantities the Verve Portfolio is expected to generate, assessing overall system security implications
and if need be, as discussed later, issuing Dispatch Advisories.
Iterative Process
Market Participants are able to review and revise their Balancing Submissions in light of market
forecasts. All submissions must reflect genuine intentions and not be designed to mislead other
participants. In this regard, participants are subject to civil penalty provisions.
The forecasting process outlined iterates forward for all future Trading Intervals in the Balancing
Horizon. Until 6:00 PM on the Scheduling Day, the Balancing Horizon includes intervals prior to 8:00
AM the next day (the end of the current Trading Day). After 6:00 PM on the Scheduling Day, the
Balancing Horizon extends by 48 intervals (the end of the next Trading Day). However, participants

are not permitted to revise Balancing Submissions for a Trading Interval once Gate Closure has
occurred for that Trading Interval except in certain circumstances (for example if a Forced Outage
occurs). Submissions for IPPs, and for Verve Energy Standalone Facilities, are subject to a rolling Gate
Closure of between 2 and 6 hours as determined by the IMO in accordance with the Market Rules
(initially set at 6 hours with a view to reducing to 2 hours).
The Market Rules provide Verve Energy fewer opportunities to revise its Balancing Portfolio
Submissions and these submissions are locked in ahead of the Facility Gate Closure period. This
reflects the additional flexibility Verve Energy has in managing its Portfolio, compared to managing
individual Facilities through simple price and quantity submissions, and its dominant position in the
market.
As discussed later, the Market Rules ensure that participants are able to update their Balancing
Submissions to take account of any Load Following they are cleared to provide in the LFAS market.
Dispatch Process
System Management is responsible for dispatching the power system, which subject to maintaining
system security requirements must be in accordance with the Balancing Merit Order.
In addition to information described previously, including Resource Plans and Fuel Declarations,
Verve Energy Dispatch Guidelines, Network Control Service Contracts, and the Balancing Merit Order,
System Management relies on a range of other information including:
Network and generator outage information.
Load and Non-Scheduled Generation forecasts.
Non-Balancing Dispatch Merit Orders (described later) for Demand Side Programmes and
Dispatchable Load Facilities.
Ancillary Service Contracts (and, as discussed later, the LFAS Market).
Systems for monitoring the state of the Power System in real time.
Some Standing Data.
In dispatching the Power System, System Management’s instructions to participants take various
forms including:
Dispatch Orders are issued to generating Facilities in the Verve Energy Balancing Portfolio
Dispatch Instructions are issued to resources in:

the Balancing Merit Order (IPP Generator Facilities and Verve Energy Standalone
Facilities) (Dispatch Instructions to the Verve Energy Balancing Portfolio are in effect
given through Dispatch Orders); and

the Non-Balancing Merit Orders (Demand Side Programs and Dispatchable Loads).
Operating Instructions are issued to Network Control Services, Commissioning or Reserve

Capacity Tests, Back-up LFAS and Ancillary Services other than LFAS, and Supplementary
Capacity Contracts.
System Management is required to monitor the compliance of Market Participants with instructions
and advise the IMO of any non-compliance. It also provides to the IMO all instructions it has issued.
The IMO is responsible for investigating any non-compliance and deciding what if any action is to be
taken.
The IMO monitors the performance of System Management.
Dispatch of Balancing Facilities
For dispatch purposes System Management uses the most recent Balancing Merit Order received
from the IMO. Under normal circumstances, System Management issues instructions to Facilities
leading into each Trading Interval in accordance with the prevailing Balancing Merit Order. However,
System Management may deviate from the Balancing Merit Order in order to ensure that system
security requirements can be maintained. The Market Rules and PSOPs set out the protocols System
Management must follow in this regard, including issuing Dispatch Advisories (discussed later) to
provide opportunities for Market Participants to respond when there is time to do so.
In formulating instructions, System Management follows a similar process to that outlined in relation
to Balancing Market forecasts. However, System Management’s process must take account of some
physical requirements, such as Facility Ramp Rate Limits, the expected trend in overall generation
requirements during the Trading Interval, network constraints etc. System Management issues
instructions to IPP Facilities and Verve Standalone Facilities in accordance with the Balancing Merit
Order (Dispatch Instructions under the Market Rules) and dispatches Facilities with the Verve Energy
Portfolio (Dispatch Orders under the Market Rules) to meet the overall Portfolio quantity determined
by the Balancing Merit Order.
System Management may only depart from the order in the Balancing Merit Order, and ultimately
from the Balancing Merit Order itself, for system security purposes, and departures along with the
reason for the departures must be published. There are also merit orders for demand side resources
as discussed below.
Non-Balancing Dispatch merit Order
Market Participants with Dispatchable Loads or Demand Side Programmes must include (and update)
in Standing Data their Facility peak and off-peak22 prices for being dispatched down from their
Resource Plan or otherwise prevailing level. Consumption increase prices must also be submitted in
22
Off Peak Trading Intervals occurring between 10:00 PM and 8:00 AM.

respect of Dispatchable Load Facilities. The IMO uses these prices to prepare Non-Balancing Dispatch
Merit Orders23 which it provides to System Management by 1:30 PM each Scheduling Day.
If System Management needs to dispatch down a Demand Side Programme or Dispatchable Load it
will follow the Non-Balancing Dispatch Merit Order to the extent practicable and the Facility will
receive its submitted price (pay-as-bid) for the MWh reduction24. System Management may only
dispatch Demand Side Programmes or Dispatchable Loads for system security purposes and only then
if resources in the Balancing Merit Order, including out of merit options, are insufficient.
Dispatch Advisories
System Management must inform Market Participants and Network Operators of impending or
current situations that could have security ramifications for Market Participants and Network
Operators. It does this by issuing Dispatch Advisories when there has been, or is likely to be, an event
that will require dispatch of Facilities out of merit or will restrict communication between System
Management and any of the Market Participants, Network Operators, or the IMO.
System Management must issues a Dispatch Advisory if any of the following has or is expected to
occur:
Emergency load shedding.
Committed generation exceeding forecast load.
Ancillary Service requirements not being met.
Significant outages of generation, transmission or customer equipment.
Significant fuel supply restrictions.
Unavailability of scheduling or communication systems required for dispatch
Out of merit dispatch including the overall Verve Energy Balancing Portfolio.
Deviation from the LFAS Merit Order (discussed later).
A High Risk Operating State or an Emergency Operating State.
A Dispatch Advisory includes a statement of the operating state (Normal, High-Risk, or Emergency)
during the period to which the advisory relates and information on how Market Participants should
respond to the situation. The Market Rules recognise that sometimes System Management will have
to react so quickly to a situation that it will not be able to issue a Dispatch Advisory until after the
event.
23
Peak and off peak consumption increase and consumption decrease merit orders.
24
If System Management were to dispatch a Dispatchable Load upwards, the Facility would pay its
submitted price.

Market Participants are obliged to keep System Management informed of any circumstances that
they become aware of that might result in System Management issuing a Dispatch Advisory.
Balancing Prices
After each Trading Day, the IMO establishes the Balancing Price for each Trading Interval from the
final Balancing Merit Order, adjusted to take Facility and Portfolio Ramp Rate Limits into account, and
the actual end of interval MW generation requirement (called the Relevant Dispatch Quantity). This
process is summarised in Exhibit 9-5. It is similar to that outlined in Exhibit 9-4 except that the
available Balancing Submission quantities are adjusted to reflect the actual generation at the start of
the Trading Interval and Ramp Rate Limits for IPP and Verve Standalone Facilities and for the Verve
Energy Balancing Portfolio.
Exhibit 9-5: Determining the Balancing Price
Ramp Rate Constrained BMO

Price ($/MWh)
Balancing
Price
Quantity (MW)
Relevant Dispatch
Quantity
Under normal circumstances the IMO publishes Provisional Balancing Prices on the next Trading Day
and Final Balancing Prices on the next Business Day after that.
9.5 The LFAS Market
The LFAS Market operates in parallel with the Balancing Market. To be eligible to participate in the
LFAS Market, a Facility must meet certain requirements which are set out in the PSOPs25. There are
separate Upwards LFAS and Downwards LFAS markets.
The first step in the LFAS Market cycle is the provision by 12:00 PM each Scheduling Day by System
Management to the IMO of forecast LFAS requirements for each Trading Interval of the following
Trading Day.
25
For example, minimum acceptable ramp rates, ability to interface with and be controlled by AGC to
regulate system frequency, dead-band etc.

The next step is the presentation of LFAS Submissions by eligible participants. An LFAS Submission is a
series of Price-Quantity Pairs relating to a Facility or the Verve Energy Portfolio for a Trading Interval.
The MW quantity in each pair plus the sum of any lower priced quantities represents the MW range
which the participant is prepared to reserve for a Facility (or Portfolio) to provide LFAS duty relative
to its balancing dispatch point at the price specified in that pair.
Verve Energy must, and other participants may, make LFAS Submissions for Trading Intervals in the
Balancing Horizon. As the default Ancillary Service provider, Verve Energy must:
Present sufficient LFAS Submissions for its Portfolio, and any Standalone Facilities, to cover the
entire amounts of Upwards LFAS and Downwards LFAS specified by System Management for
each Trading Interval.
Submit a price per MW for providing any Upwards or Downwards Back-Up LFAS which System
Management may need to draw on (for example, should an LFAS Facility fail).
The first LFAS Submissions for a Trading Day are therefore made by 6:00 PM on the Scheduling Day,
when the Balancing Horizon is extended through the next Trading Day and initial Balancing
Submissions are made.
The IMO then creates Forecast Upwards and Downwards LFAS Merit Orders by stacking the
quantities in respective Upwards and Downwards LFAS Submissions in price order.
The IMO then prepares Downwards and Upwards LFAS Forecasts from the intersection of each LFAS
Merit Orders with the forecast LFAS requirement (following the principles illustrated previously in
Exhibit 9-4 for the Balancing Forecasts). The IMO then provides the Forecast LFAS Merit Orders to
System Management and provides to participants the forecast LFAS Price and any LFAS quantity they
are forecast to provide for each Trading Interval of the Balancing Horizon.
Participants are then able to review their LFAS Submissions in light of Balancing and LFAS Forecasts.
This process is iterative, as for Balancing Submissions, until LFAS Gate Closure.
LFAS is scheduled in 6-hour fixed windows (the LFAS Horizon) commencing at 8:00 AM, 2:00 PM, 8:00
PM and 2:00 AM. Gate Closure for LFAS Submissions occurs 3 hours prior to the Balancing Gate
Closure corresponding to the first Trading Interval in the LFAS Horizon. Exhibit 9-6 shows these
relationships for the first 6 hour LFAS Horizon on a Trading Day, which starts at 8:00 AM, assuming a
2 hour Balancing Gate Closure.

Exhibit 9-6: Sequencing LFAS Horizon and Gate Closure
Initial LFAS and LFAS Gate

Balancing Closure
Submissions Balancing
Review/ Update LFAS Gate Closure
Submissions for 8am to 2pm for 8am
LFAS Horizon Trading LFAS Horizon
Interval
6 pm 3am 6am 8am 2pm
3
hours
Trading Day
Starts
Again assuming a 2 hour Balancing Gate Closure, Exhibit 9-7 shows the relationship between LFAS
and Balancing Gate Closure times and each o the 6 hour LFAS Horizons.
Exhibit 9-7: LFAS Horizons and Gate Closure Times
LFAS Horizon Trading Intervals26

LFAS Gate Closure Balancing Gate Closure
First Last
3:00 AM 6:00 AM 8:00 AM 1:30 PM
9:00 AM 12:00 PM 2:00 PM 7:30 PM
3:00 PM 6:00 PM 8:00 PM 1:30 AM
9:00 PM 12:00 AM 2:00 AM 7:30 AM
This cycle ensures that participants have opportunities to adjust their Balancing Submissions to
reflect any LFAS quantity they have been cleared to provide in the LFAS Market. Participants are
responsible for managing any interactions between their Balancing and LFAS Submissions.
As noted previously, Verve Energy has fewer opportunities to adjust its Portfolio Balancing
Submissions than for individual Facility based submissions. However, it has opportunities to adjust its
Portfolio Balancing Submissions for some Trading Intervals within one hour after LFAS Gate Closure
so that it can take account of any cleared (or un-cleared) LFAS quantities. For example, assuming a 2
hour Balancing Gate Closure, Verve Energy may update its Balancing Portfolio Submissions as shown
in Exhibit 9-8. The 6:00 PM resubmission time coincides with the time when initial Balancing
Submissions must be presented for the next day.
26
Half-hour starting times

Exhibit 9-8: Verve Portfolio Balancing Re-Submissions and LFAS Horizons
Starting of 6 Balancing Portfolio Submissions

LFAS Gate Balancing
Hour LFAS
Closure Gate Closure
Horizon Re-submission Time For Trading Intervals
3:00 AM 6:00 AM 8:00 AM 4:00 AM 8:00 AM +
9:00 AM 12:00 PM 2:00 PM 10:00 AM 2:00 PM+
3:00 PM 6:00 PM 8:00 PM 4:00 PM 8:00 PM+
6:00 PM27 10:00 PM+
9:00 PM 12:00 AM 2:00 AM 10:00 PM 2:00 AM +
Once LFAS Gate Closure occurs, from each of the Upwards and Downwards Merit Orders the IMO
determines the lowest priced selection of LFAS providers to meet LFAS requirements and determines
the relevant LFAS price from the highest priced LFAS provider selected.
Operationally, System Management activates accepted LFAS Facilities and places them under AGC
control for the Trading Interval. Where a shortfall in LFAS occurs following a reduction in LFAS
capability, System Management is able to call on Verve Back-up LFAS (which can be provided from
the Portfolio or Stand-alone Facilities.
9.6 Energy Market and LFAS Settlement
The IMO is responsible for settling the STEM, Balancing and LFAS markets.
STEM Settlement
The key components of the STEM settlement are:
Those who buy energy in the STEM, whether by increasing consumption or decreasing supply,
pay the IMO for that energy.
Those who sell energy into the STEM, whether by decreasing consumption or increasing
supply, are paid by the IMO for that energy.
Balancing
The IMO charges or pays Market Participants for any Balancing Quantity attributed to them. A
participant’s Balancing Quantity is the difference in a Trading Interval between the actual quantity it
purchased or supplied (Loss Adjusted in either case) and its Net Contract Position.
27
Initial Balancing submissions for next Trading Day.

Balancing Settlements are as follows:
Market Generators receive the Balancing Price for Balancing Quantity they supply to the market
(i.e. in excess of their Net Contract Position) and pay the Balancing Price for Balancing Quantity
they purchased from the market. They may also be entitled to Constrained On or Constrained
Off compensation as described in the next section.
Market Customers receive the Balancing Price for Balancing Quantity they sold back to the
market (i.e. quantity less than their Net Contract Position) and pay the Balancing Price for
Balancing Quantity they purchased from the Market. Market Customers are able to request
reductions from their Demand Side Programmes to avoid exposure to high Balancing Prices.
Demand Side Programmes and Dispatchable Loads dispatched by System Management receive
the standing data (pay-as-bid) price specified by the relevant Market Participant.
(Interruptible Loads are funded under Ancillary Service contracts).
Constrained on and off compensation
A Balancing Facility, including the Verve Energy Balancing Portfolio that was dispatched out of merit
by System Management is eligible for Constrained On or Constrained Off Compensation, subject to
certain criteria. A Constrained On situation occurs if more energy has been dispatched from a Facility
(or the Verve Energy Balancing Portfolio) than its Balancing Submission indicated when compared to
the Balancing Price. A Constrained Off situation occurs if more energy could have been dispatched
from a Facility (or the Verve Energy Balancing Portfolio) when its Balancing Submission is compared
to the Balancing Price.
The IMO determines Constrained On and Constrained Off quantities by comparing the actual energy
generated by a Facility (or the Verve Energy Balancing Portfolio) to the theoretical amount, called the
Theoretical Energy Schedule that should have been dispatched given its Balancing Submission and
the Balancing Price. For example, Exhibit 9-9 illustrates the Theoretical Energy Schedule for a Facility
with a Balancing Submission comprising 4 Price-Quantity Pairs, of which 1 and 2 are priced below the
Balancing Price and 3 and 4 are priced above the Balancing Price. Price-Quantity Pairs 1 and 2 should
therefore have been dispatched to the maximum extent practical as indicated by the red line showing
the Facility ramping up at its Ramp Rate Limit from its actual MW level at the start of the interval to
the top of Price-Quantity Pair 2. The area shaded in blue is thus the Theoretical Energy Schedule. Any
MWh generated above that level is Upwards Out of Merit Generation.

Exhibit 9-9: Theoretical Energy Schedule Example
MW
P-Q Pair 4
Facility Ramp
Rate Limit P-Q Pair 3
Theoretical
Dispatch
P-Q Pair 2
Facility Start of
Interval MW
P-Q Pair 1
0 mins 30 mins
Similarly if actual MWh generated by a Facility is less than its Theoretical Energy Schedule, the
difference is Downwards Out of Merit Generation. Maximum and Minimum Theoretical Energy
Schedules are calculated for assessing Upwards and Downwards Out of Merit Generation
respectively. These are the same except when the Balancing Price equals the price (Loss Adjusted) in
a Price-Quantity Pair. When that occurs, the Minimum Theoretical Energy Schedule is the maximum
energy that could have been dispatched from all of the Facility’s Price-Quantity Pairs with a Loss
Factor Adjusted price less than the Balancing Price whereas the Maximum Theoretical Energy
Schedule is the maximum energy that could have been dispatched from Price-Quantity Pairs with a
Loss Factor Adjusted price less than or equal to the Balancing Price28.
If any Upwards or Downwards out of Merit Generation has occurred, the IMO deducts any non-
qualifying quantity associated with the provision of LFAS29 and, if in excess of the Settlement
Tolerance, attributes any remaining Upward or Downward Out of Merit Generation to individual
Price-Quantity Pairs within the Facility’s Balancing Submission. This process takes account of Ramp
Rate Limits and the maximum energy which could have been dispatched up or down from each Price-
Quantity Pair given the Facility’s actual MW level at the start of the Trading Interval.
The IMO compensates the Facility (or Verve Energy Balancing Portfolio):
For any energy Constrained On from each Price-Quantity Pair at the submitted price less the
Balancing Price.
28
Outages are also taken into account.
29
If an IPP or Verve Energy Standalone Facility provides Ancillary Services other than LFAS or is
dispatched to provide a Network Control Service, it is ineligible for compensation. In the case of the
Verve Energy Balancing Portfolio, any out of merit generation associated with Spinning Reserve or
Load Rejection Reserve that was triggered is ineligible for Constrained On or Off compensation.

For any energy Constrained Off from each Price-Quantity Pair at the Balancing Price less the
submitted price).
Non-Scheduled Generation is eligible for Constrained On Compensation if the Balancing Price was
less than its Balancing Submission price30 and the Facility was not dispatched down by System
Management. Similarly, it is eligible for Constrained Off Compensation if the Facility was dispatched
down by System Management but its Balancing Submission price was less than the Balancing Price.
Reconciliation
Since Loss Factors are based on averaged marginal losses, and marginal losses tend to exceed
average losses, the application of loss factors tends to mean that consumers pay more than is
required to fund losses. Some market revenue will therefore typically need to be refunded to Market
Customers each month as a non-STEM settlement payment called “reconciliation”. While this is
expected to be a payment to Market Customers, there may be some exceptions where additional
payments must be made by Market Customers.
Constrained On and Constrained Off payments to Market Generators are funded by Market
Customers, prorated according to their monthly energy.
LFAS Settlement
LFAS Facilities activated by System Management receive the relevant LFAS Price determined by the
IMO as described previously. Verve Energy is paid the relevant Back-up LFAS Price if System
Management calls on this service.
9.7 Market Advisories
The IMO must inform Market Participants of impending situations that could impact market
outcomes. It will do this by issuing market advisories in the following situations:
Market system outages, whereby aspects of the market cannot run normally due to systems
failures; and
Notification of suspension of any aspect of the market.
These advisories will include information on how Market Participants should respond to the situation.
Note that advisories related to dispatch are called Dispatch Advisories, and are issued by System
Management, as discussed in section 9.4.
30
Non-Scheduled Generators submit a single price for downwards dispatch from their current level.

10. Metering
Most of the metering processes are described outside of the Wholesale Market Rules. This is
because the metering processes must address the requirements of wholesale, retailers and access
metering. Hence the Market Rules focus on who must provide metering data, the process for
submitting that data and the interface between the requirements of the market and the general
metering regime.
A Metering Data Agent is required to maintain a registry of which meter corresponds to each Market
Participant and must read meters and provide the data to the IMO for settlement purposes. Meter
registry data must be provided to the IMO as required to support Facility registration.
Each Network Operator has the option to be the Metering Data Agent for its own network, but if it
does not take up this option then Western Power will fill this role.
The Metering Data Agent must provide meter data to the IMO on a monthly basis (though may
submit data more frequently) where this data includes meter data for the previous Trading Month,
and any updates to metering data previously submitted to the IMO. The Metering Data Agent must
support the IMO in matters such as providing any additional data required in setting Individual
Reserve Capacity Requirements for individual Market Customers.
Each Metering Data Agent must operate to a Metering Protocol. This is a generic term that means
any arrangement between the Metering Data Agent and the wholesale/retail Market Participants it
provides the service to. This generic term is used because some Metering Data Agents may be
covered by the Access Code, while others may not be.
Any metering disputes arising in the wholesale market must be translated by the Metering Data
Agent into an equivalent dispute under the Metering Protocol.
While a Metering Data Agent may have other metering duties under its Metering Protocol, these are
not subject to the Market Rules.

11. Settlement
11.1 Settlement Process
Settlements involve three main processes:
STEM transactions are settled on a weekly basis.
Non-STEM transactions are settled on a monthly basis.
Any adjustments to settlement are made at least once every three months via a settlement
adjustment process that corrects both STEM and Non-STEM settlements.
The STEM is a forward market and no meter data is required for its settlement. For this reason the
STEM market can be settled on a different timeframe from other transactions. A Trading Week is a
period of seven days starting at 8:00 AM. on Thursday and STEM transactions for that Trading Week
will be summarised in daily STEM Settlement Statements and a weekly STEM Invoice. The STEM is
settled on the third business day following the completion of the Trading Week.
All transactions other than STEM settlement are included in the Non-STEM Settlement Statements
issued by the IMO following each Trading Month and after meter data has been received.
Each settlement statement includes data in sufficient detail for the Market Participants to verify the
accuracy of the statement.
The settlement adjustment process calculates the change in settlement position of all Rule
Participants after accounting for all changes to settlement data stemming from updated data and
resolutions of Notices of Disagreement and Disputes. A Notice of Disagreement is a relatively
straightforward way for a Rule Participant to notify the IMO of any aspect of their settlement
statements that it disagrees with. Upon receipt of such a notice, the IMO will investigate the issue
itself if it relates to data developed by the IMO, or it will forward it on to the relevant Metering Data
Agent or System Management. The IMO has three months to report back to a Market Participant as
to whether it believes the original settlement statement was wrong. Payment of the originally
invoiced amount must be made in the interim.
If the IMO issues an Adjusted Settlement Statement, a Market Participant can also issue a Notice of
Disagreement up until nine months have elapsed since the original Settlement Statement was issued.
This feature is included because the Market Rules do not require the IMO to retain old versions of
settlement software in an operable fashion for more than 12 months (because of the cost of
maintaining licenses etc).
If the IMO does not address an issue to the satisfaction of the Rule Participant through the
disagreement process, the Rule Participant can dispute the matter. If the dispute is not resolved to
the satisfaction of the Rule Participant, it has the option of taking the IMO to court.

11.2 Settlement Timelines
Exhibit 11-1 presents a summary of the Market Settlement timetable. In this table:
“D” denotes the Trading Day.
“W” denotes the Trading Week, starting on a Thursday, in which the Trading Day occurs.
Trading Weeks relate to the settlement of the STEM.
“M” denotes the Trading Month, comprising all Trading Days that commence within a
calendar month, in which the Trading Day occurs. Trading Months are used for the
settlement of non-STEM transactions.
“BD” denotes a business day. Where a range of dates is presented, the IMO has discretion to
choose a single date within that range, but must publish the actual dates prior to the start of
each financial year.
“SA” denotes the date on which a Settlement Adjustment process commences.
Exhibit 11-1: The Settlement Timetable
Day Event
D Trading Day ends.
1st BD after a Trading The IMO issues a STEM Settlement Statement for each day and a STEM
Week invoice for the preceding Trading Week in which day D occurs.
2nd BD after release Settlement date for STEM Invoice.

of STEM Settlement
Statement
20th BD after release Deadline for notifying IMO of disagreement with STEM settlement
of STEM Settlement statement. Any resolution of disagreements will be reflected in an
Statement Adjusted Settlement Statement (see below).
1st BD of month M+2 Generator and contestable customer meter data submitted to IMO by
Metering Data Agents.
Not less than 10 BDs Submission of Capacity Credit transfers for the Trading Month. Prior to the
and not more than 5 Non-STEM Settlement Statement issuance date the IMO will go through a
BDs prior to non- process to ensure that the Capacity Credit transfers are not inconsistent
STEM Settlement with the Capacity Credits held by generators and the Reserve Capacity
Statement issuance. Requirements of the Market Customers to whom they are transferred.
6th BD of month M+2 Non-STEM Settlement Statements for trading day D are issued. These are
based on actual meter data for generators (the operational meter data in
the case of Verve Energy Facilities that are not metered) and contestable
customers, and estimates of the aggregate non-interval meter load of

Day Event
Synergy.
6th BD of month M+2 Invoice issued based on Non-STEM Settlement Statement for month M.
8th BD of month M+2 Settlement date for Non-STEM Invoice.
20th BD after issuance Deadline for notifying the IMO of any disagreements with the Non-STEM
of Non-STEM Settlement Statement.
Settlement
Statement issued
SA, a date set Commencement of Settlement Adjustment Process.

annually and
All adjustments to settlement input data for STEM and Non-STEM
occurring at least
transactions to be included must be provided to the IMO by this time.
once every 3 months.
Changes in data will result from voluntary corrections of data by the
issuing party or as a result of resolving disagreements and disputes. The
issuing parties are, for metering data, the Metering Data Agents, for
dispatch instruction related data, System Management, and for all other
data the IMO.
By 20th BD after SA IMO must have rerun all settlement runs to which adjustments have been
made and must have issued Adjusted Settlement Statements in respect of
all STEM or Non-STEM Settlement Statements originally issued.
2nd BD after issuance Invoice issued based on the Adjustment Settlement Statements issued as a
of Adjusted result of the current settlement adjustment process.
Settlement
Statements
2nd BD after issuance Settlement date for Adjusted Settlement Statement Invoice.
of invoices for
Adjusted Settlement
Statements
20th BD after issuance Deadline for notifying the IMO of any disagreements with an Adjusted
of invoices for Settlement Statement.
Adjusted Settlement
Any adjustments will be addressed in a future adjustment process.
Statements
11.3 The Components of Settlement
Settlement Statements will include a variety of transactions. The key transactions are summarised in
Exhibit 11-2.

Exhibit 11-2: The Components of Settlement
Settlement Component Who Funds It? On What Basis?
STEM STEM Participants STEM Quantities Traded
Targeted Reserve Capacity Cost. Market Customers The Market Customer’s

Individual Reserve Capacity
This is the cost incurred by the IMO in
Requirement less the number
procuring just enough Capacity Credits
of Capacity Credits it holds.
(or Supplementary Capacity) to cover the
difference between the Capacity Credits If the customer has fully met
traded bilaterally and the total their capacity requirement by
requirement of the market. Reserve trading Capacity Credits
Capacity security deposits drawn down by bilaterally, they will pay
the IMO, if any, may offset any nothing.
Supplementary Capacity cost.
Shared Reserve Capacity Costs less the Market Customers In proportion to each Market
capacity component of Load Following Customer’s Individual Reserve
costs. Capacity Requirement.
The Shared Reserve Capacity Costs are Note that SRCC cannot be less
the costs of procuring Capacity Credits than zero if the IMO has not
beyond the requirements of the market had to exceed the Reserve
(to the extent this occurs) less any Capacity Requirement when
rebates and security deposits retained by acquiring Capacity Credits.
the IMO as a result of non-compliance.
The capacity component of Load
Following is a rebate stemming from the
fact that generators are fully funding
these services despite consumers funding
their capacity. i.e., both generators and
Market Customers are paying for the
capacity, so the generator payments are
rebated to Market Customers.
Spinning Reserve Cost (availability Market Generators Actual generation in each

components) Trading Interval during a
Trading Month.
Load Following Cost Market Customers Metered MWh during the

and month for all loads and for Non-
Market Generators Scheduled Generators (but not
Scheduled Generators)
Load Rejection Reserve Cost, Constrained Market Customers In proportion to metered MWh
On and Constrained Off Compensation during the month.
costs, Dispatch Instruction Payments to
Demand Side Programmes or

Settlement Component Who Funds It? On What Basis?

Dispatchable Loads, Outage
Compensation costs, and Reconciliation
(which may be negative)
Balancing Settlement Amounts, including Market Customers MWh deviation from NCP.
any Constrained On and Constrained Off and
Compensation and any Market Generators
Market Fees Market Customers Metered MWh during the

and month.
These are used to fund the IMO, System
Market Generators
Management and the Economic
Regulation Authority)
Default Levy (only following a default) Market Customers In the first instance, metered
and MWh during the month, but
Market Generators eventually adjusted to be
relative to the metered MWh
over a year.
11.4 Default
Default rules apply in the event of a Market Participant failing to meet its settlement obligations.
In the event of non-payment of bills the IMO will deem the Market Participant to be in default and
may lay claim to credit support that it holds on behalf of the Market Participant. The Market
Participant would be given at least 1 Business Day, and at the IMO’s discretion, up to five Business
Days to rectify the situation. In the event that the situation is not rectified, the Market Participant
may, at the discretion of the IMO, be fully or partially suspended from participation in the market.
If following a default event the market lacks adequate funds to settle, then the shortfall will be
funded by a levy on Market Participants. This levy will be collected a number of days after the
default and will be allocated across all Market Participants based on their metered supply or
consumption in the preceding month. The funds collected will be used to complete the settlement
process. If the defaulting participant eventually pays its outstanding obligations, then the levy will be
refunded. At the end of each financial year the default levy will be reallocated between Market
Participants based on their metered supply or consumption over the year. This end of year
adjustment ensures that participants do not avoid funding a default simply because they do not
happen to be producing or consuming in the month in which the default occurred.

Appendix 1: Representing Intermittent Loads

This appendix describes how physical Facilities are represented when an Intermittent Load is
registered in the market. The following diagram describes the physical layout of generators, loads
and meters associated with an Intermittent Load.
Physical Load A (Max Load = X)

N
E
Physical Generator B (Capacity = Y) T
M1 W
O
Physical Generator C M2 R
K
Physical Load D M3
The next diagram shows how this system is represented when an Intermittent Load is registered.
Intermittent Load A (Max Load = MIL)

Comprises MIL MW of Physical Load A and MIL M5
MW of Physical Generator B
Non-Dispatchable Load A (Max Load=NL=X-MIL) M6

M4
N
Notional Generator B (Capacity =MSG =Y-MIL) M7 E
T
W
O
Physical Generator C M2 R
K
Physical Load D M3
The maximum intermittent load is declared to be MIL (which must be not more than the maximum
load). Intermittent Load A comprises MIL MW of load from Load A and the first MIL MW of supply
from generator B. This intermittent load may be non-dispatchable or interruptible. Non-Dispatchable
Load A is the remaining load of Physical Load A. Notional Generator B is the residual capacity of
Physical Generator B. It will actually be registered like a normal generator except (a) it will be
associated with the intermittent load and (b) its capacity figures (on each fuel) will reflect its residual
capacity. Note that MSG may have a different value depending on which fuel is being used (but on
each fuel the generator must have some residual capacity). Physical Generator C and Physical Load D
are treated like normal generators and loads.

Where Meter M1 existed in the physical world we replace this with Meter 4, which is just Meter 1
less the metered values of Meters 2 and 3. i.e. M4 = M1 – M2 – M3. Thus M4 measures the net
output of the Facilities that are only metered by meter 1.
Under clause 2.30B.10 the IMO must allocate the measurement for Meter 4 between Meters 5, 6 and
7 (none of which actually exist in the real world). Effectively we are allocating the measured value at
Meter 4 between the three notional Facilities.
The logic of allocating the M4 value is that:
Net supply is associated with Notional Generator B up to its capacity.
Net consumption is associated with the Non-Dispatchable Load up to its capacity.31
All other supply and consumption is associated with the Intermittent Load. This energy is
settled at MCAP and Intermittent Load refunds only apply to net consumption.
Mathematically, the rules are:
If M4 > MSG then M5 = M4 – MSG, M6 = 0, M7 = MSG
If 0 < M4 MSG then M5= M6 = 0, M7 = M4
If M4 = 0 then M5 = M6 = M7 = 0
If 0 > M4 -NL then M5 = 0, M6 = M4, M7 = 0
If –NL > M4 then M5 = M4 + NL, M6 = -NL, M7 = 0
Suppose the Physical Load A is 100 MWh (X=100), Physical Generator B can supply 80 MWh (Y=80),
the Maximum Intermittent Load is 50 MWh (though this value is not actually used in the allocation),
and there is no Physical Generator C or Physical Load D, we get the solutions in the following graph.
The Intermittent Load Metered Schedule corresponds to meter M5, the Non-Dispatchable Load
metered schedule corresponds to meter M6, and the generator Metered Schedule corresponds to
meter M7.
31
Earlier versions of the rules incorrectly associated consumption with the Intermittent Load first. This
was illogical as it would mean that any Non-Dispatchable Load consumption would be seen as net
consumption by the Intermittent Load, causing an Intermittent Load Refund to be applied.

80
70
60
50
40
30
20
Metered Schedules
10
0
-100 -90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 70 80
-10
-20
-30
-40
-50
-60
-70
-80
-90
-100
Measured Load (Meter M4)
Intermittent Load Meter Schedule Non-Dispatcable Load Meter Schedule Generator Meter Schedule Total
The IRCR for the Intermittent Load is simply its nominated maximum intermittent load (MIL)
multiplied by the system reserve margin. So if the system reserve margin is 15% then the IRCR for the
Intermittent Load is 0.15 MIL. This reflects the fact that generator is covering the Intermittent Load.
However, whenever Intermittent Load has net consumption beyond 3% of MIL at a time when the
first MIL MW of Physical Generator B is not on Planned Outage the Intermittent Load must pay
intermittent load refunds (because this implies that the generator may be on an outage and would be
exposed to refunds if it were a normal generator with Capacity Credits).
The Non-Dispatchable Load on meter M6 will have its IRCR determined in the normal fashion, with its
IRCR typically being in the region of 115% of its peak summer load if the system reserve margin is
15%.
From an IRCR perspective a participant wants to maximise its intermittent load and minimise its
Dispatchable Load. However it needs to trade off the risk of refunds if its generator is not reliable
enough to cover the intermittent load.
The IMO will be monitoring registrations to ensure that the declared Non-Dispatchable Load NL value
reflects a realistic representation of the actual peak non-Dispatchable Load which is not Intermittent
Load.
Note that under special circumstances Physical Generator B may be at an entirely different node, but
for the purpose of the above processes, it must be metered (M8) and is translated by the
combination of its loss factor and the intermittent load nodes loss factor to be merged into the meter
value for M1. i.e. M1 = M4 – M2 – M3 – (M8 * LF_PGB / LF_IL) where LF_PGB is the loss factor for
Physical Generator B’s node and LF_IL is the loss factor for the Intermittent Load node. Consequently
everything else works in the same way.

Appendix 2: Summary of Market Activities
Activity Administrator of Activity Parties to Activity
Independent System Independent System Verve Energy Network Market Independent

Market Operator Management Market Management Operators Customers Market
Operator Generators
Rule Changes x x x x x x x
Changes to PSOPs x x x x x x x x
Changes to Market x x x x x x x
Procedures.
Registering as Rule x x x x x
Participant
Facility Registration x x x x x x
Reserve Capacity x x x x
Procurement
Capacity Supplying x x x
Intermittent Loads
Supplementary Reserve x x x
Capacity Procurement
Network Control Service x x x x

(Western Power)


Operator Generators
Standing Data x x x x x x
Submissions
Bilateral Contract Data x x x

Submission
Short Term Energy x x x x

Market
Resource Plan x x32 x

Submission to IMO
Scheduling of Verve x x
Energy Portfolio
Balancing & LFAS x x x

Submissions
Balancing and LFAS x x x

Merit Orders and
Forecasts
Dispatch x x x x x
Balancing Pricing x x x x x
32
In respect of Standalone Facilities


Operator Generators
LFAS Pricing x x x
Settlement x x x x
Prudential x x x x
Requirements
Compliance Monitoring x x x x x
with respect to Security
and Reliability
Compliance Monitoring x x x x x x
other than for Security
and Reliability.
Outage Planning x x x x x x
Commissioning Test x x x
Planning
10 Year Generation x x x x x
Planning (LT PASA)
10 Year Transmission x x x x x
Planning (Western Power)
3 Year Capacity Planning x x x x x

(MT PASA)


Operator Generators
3 Week Capacity x x x x x
Planning (ST PASA)
Ancillary Service x x
Requirements
Procuring Ancillary x x x x
Services

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Independent Market Operator

Wholesale Electricity Market Design Summary

This document provides only a summary of the content of the Wholesale

No person or organisation should act on the basis of any matter

The Independent Market Operator disclaims any responsibility for any

Version 1.4 i 24 October 2012

Version Date Comments

1.2 21 September 2006 Market start

1.4 24 October 2012 Updates to section 4.5 (Reviewable Decisions and

Version 1.4 ii 24 October 2012

Version 1.4 i 24 October 2012

9. The Energy Market .......................................................................................................................... 45

Version 1.4 ii 24 October 2012

Ensuring that adequate generation and demand-side management capacity is available to

The competitive supply of the Load Following Ancillary Service (LFAS).

This report is structured as follows:

Section 3 provides a description of the market governance regime.

Section 4 presents a description of the administration of the market.

Section 7 describes the capacity mechanism.

Section 8 outlines the procurement of Network Control Services as alternatives to

Version 1.4 1 24 October 2012

Section 9 covers the energy and LFAS markets.

Section 10 provides a short description of metering issues.

Section 11 describes the settlement process.

Appendix 1 provides additional detail on the representation of Intermittent Loads, including

Version 1.4 2 24 October 2012

2. A Brief Overview of the Market

2.1 The Market Entities

The market comprises the following entities.

A Network Operator is a party that operates, or intends to operate, a transmission or

Western Power3 is a Network Operator. System Management is a ring-fenced business unit

Version 1.4 3 24 October 2012

2.2 The Trading Mechanisms

The market supports the following trading mechanisms:

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2.3 Ancillary Services

2.4 Network Control Service

2.5 Prudential Obligations

Version 1.4 6 24 October 2012

2.6 Classes of Facilities

The following classes of Facilities can be registered in the market:

A Scheduled Generator is a generator that can be scheduled to operate at a specified level

A Non-Scheduled Generator is generator that is either unable to be scheduled to operate at a

An Interruptible Load is a load that trips automatically in response to a frequency change. An

A Non-Dispatchable Load is load that is not a Dispatchable Load or an Interruptible Load. A

Version 1.4 7 24 October 2012

2.7 Market Settlement

Exhibit 2-1: An illustration of the settlement cash flows

Ancillary Service The IMO Ancillary Service

Version 1.4 8 24 October 2012

Version 1.4 9 24 October 2012

3.1 The Market Objectives

b) To encourage competition among generators and retailers in the South West

3.2 The IMO

The IMO has the following functions:

Maintaining and developing the Market Rules.

Approving Power System Operation Procedures (PSOPs) developed by System Management.

Operating the Reserve Capacity Mechanism.