2010 Frequency Control Ancillary Services (FCAS) Investigation

Investigation Final Report and Determination

In 2010, the Regulator completed its investigation into the pricing policies of Hydro Tasmania in its supply of raise contingency frequency control ancillary services (FCAS) to meet the Tasmanian local requirement. The Regulator's decisions and reasons for those decisions are contained in its Final Report and are reflected in a Price Determination with some minor variations to resolve implementation issues. Those variations are summarised in a memorandum accompanying the Regulator's determination.

This information sheet gives a one page explanation of the ancillary services that were the subject of the investigation, the reason for the investigation, and the Regulator's decision.

In summary, the Regulator decided that:

  • The price control mechanism to be applied to Hydro Tasmania would be by the regulation of Hydro Tasmania's provision and pricing of FCAS contracts.
  • Hydro Tasmania would be required to offer a 'safety net' contract to other Tasmanian generators that were not subject to any special conditions other than those relating to self-provision and new sources of supply.
  • The price of the FCAS 'safety net' contract would represent Hydro Tasmania's costs of physically delivering to the spot market the amount of FCAS nominated in the 'safety net' contract.

During the investigation, the Regulator was assisted by consultants, Intelligent Energy Systems (IES). The Regulator's Final Report should be read in conjunction with IES's FCAS Contract design and pricing - final report to the Regulator which details IES's recommendations for the design of the FCAS 'safety net' contract and the pricing methodology, parameters and parameter values to be used in determining the FCAS 'safety net' contract price.

Following the investigation, the Regulator made a determination that reflected the Regulator's decisions in its Final Report. The effective date of the determination was 1 February 2011.

The Regulator's objectives, in undertaking the FCAS investigation and making a determination, were to promote efficiency and competition in the Tasmanian electricity supply industry and protect electricity consumers from the adverse effects of the exercise of substantial market power.

Investigation Draft Report
On 3 November 2010, the Regulator published its Draft Reporton the 2010 FCAS investigation which included a Consultation Draft prepared by Intelligent Energy Systems (IES), on behalf of the Regulator, on the design and pricing of regulated FCAS contracts. The Regulator sought submissions on matters contained in the Draft Report and Consultation Draft by close of business, 24 November 2010.

Submissions were received from:

  Hydro Tasmania 2010 FCAS   (133Kb)

  Aurora Energy 2010 FCAS   (870Kb)

  Infratil Energy Australia 2010 FCAS   (265Kb)

The Regulator considered submissions prior to preparing its Final Report and making the determination.

Investigation process leading to the Regulator's Investigation Draft Report

Following the Regulator's declaration of the supply of raise contingency frequency control ancillary services (FCAS), by Hydro Tasmania to meet the Tasmanian local requirement, as declared electrical services (refer below), the Regulator commenced an investigation into the pricing policies of Hydro Tasmania in providing these services.

Notice of the investigation was provided to the Treasurer, Minister for Energy and Hydro Tasmania on 3 March 2010 and published in the Mercury on 6 March 2010.

The Regulator issued the following terms of reference for the investigation. The terms of reference set out the purpose of the investigation and the matters to be considered during the course of the investigation.

Submissions were called from interested parties on matters raised in the terms of reference, or any other matter relevant to the investigation (including in relation to Hydro Tasmania's submission to the investigation which was made on 30 April 2010).

Hydro Tasmania made a presentation on its submission to the Regulator and IES on 11 May 2010.

Submissions were received from:

  AETV 2010 FCAS ToR   (165Kb)

  Aurora Energy 2010 FCAS ToR   (747Kb)

On 10 June 2010, Hydro Tasmania provided a response to some of the issues raised in the submissions of AETV Power and Aurora Energy.

The Regulator engaged Intelligent Energy Systems (IES) to provide expert advice on an appropriate price mechanism to be applied to the supply of the declared electrical services by Hydro Tasmania.

IES provided its draft report to the Regulator, recommending the price control mechanism to be applied to the supply of the declared electrical services by Hydro Tasmania. Submissions were sought, by 9 July 2010, from interested parties on matters contained in that Draft Report.

Submissions were received from:

  Mark B Lively 2010 FCAS IES   (304Kb)

  Hydro Tasmania 2010 FCAS IES   (118Kb)

  AETV Power 2010 FCAS IES   (1Mb)

Hydro Tasmania also made a presentation to the Regulator on 26 July 2010 in relation to its submission on IES's draft report.

IES considered these submissions and reflected any changes in its advice in a final report to the Regulator on an appropriate price control mechanism to be applied to the regulation of these declared electrical services. The Regulator considered this report at its July 2010 meeting and agreed that an obligation on Hydro Tasmania to offer hedge contracts for raise contingency FCAS to other Tasmanian generators, where the price methodology, parameters and terms and conditions are approved by the Regulator, was the appropriate price control mechanism to be applied.

The Regulator sought expressions of interest from a number of consultants to draw upon the IES Final Report and provide advice to the Regulator on the design and pricing of the regulated FCAS contracts. IES was successful in this regard. IES provided a Consultation Draft on the design and pricing of regulated FCAS contracts which was included in Appendix A of the Regulator's Draft Report which was issued on 3 November 2010 for comment.

Declaration of services

The Regulator decided that Hydro Tasmania has substantial market power in the supply of raise contingency FCAS in the Tasmanian region and that the promotion of competition, efficiency and the public interest requires that these services be declared by the Regulator as declared electrical services.

The Regulator published a Statement of Reasons on 4 January 2010, which provides the reasons for his decision to declare the services. Hydro Tasmania responded to the Regulator's decision.

The declaration took effect on 3 February 2010, being the day that the notice making the declaration was published in the Tasmanian Government Gazette.

Process leading to this declaration.

Pursuant to the Electricity Supply Industry (Price Control) Regulations 2003 (now the Electricity Supply Industry (Pricing and Related Matters) Regulations 2013) the Regulator can make determinations regulating the prices that may be charged by an electricity entity for the supply of a declared electrical service. The Regulator may declare a service to be a declared electrical service if the Regulator is of the opinion that –

(a) the electricity entity has substantial market power in respect of that good or service; and

(b) the promotion of competition, efficiency or the public interest requires the making of the declaration.

In July 2009, the Regulator published an Issues Paper providing detail of the services, the circumstances that, in the Regulator's view, warranted the making of the declaration, and an assessment of how the supply of raise contingency FCAS meets the criteria above.

The Regulator gave written notice of the intention to make the declaration, and the reasons for doing so and invited submissions on the proposal. The Regulator considered submissions prior to making his final decision.

Submissions were received from:

  Infratil Energy Australia Declare FCAS   (79Kb)

  LMS Generation Declare FCAS   (1Mb)

  Australian Energy Regulator Declare FCAS   (1Mb)

  Energy Response Pty Ltd Declare FCAS   (60Kb)

  Gunns Limited Declare FCAS   (403Kb)

  National Generators Forum Declare FCAS   (99Kb)

  AETV Pty Ltd Declare FCAS   (1Mb)

  Aurora Energy Declare FCAS   (1Mb)

  Rio Tinto Declare FCAS   (107Kb)

  Roaring 40s Declare FCAS   (861Kb)​

  Hydro Tasmania Declare FCAS   (278Kb)

Hydro Tasmania subsequently made a presentation to the Regulator on 10 September 2009 in relation to its submissions. The following material was presented on 10 September 2009 and provided under cover of letter dated 15 September 2009.

  Hydro letter FCAS presentation 2009   (34Kb)

  Hydro FCAS presentation 2009   (182Kb)

  Hydro speaking notes to FCAS presentation 2009   (133Kb)

  Hydro information pack FCAS presentation 2009   (217Kb)​

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