Wholesale Contract Regulatory Framework
Supporting Regulatory Documents
The wholesale contracting regulatory framework is supported by a number of supplementary instruments.
The Electricity Wholesale Contracting Guideline sets out Hydro Tasmania's responsibilities in relation to regulated electricity wholesale market contracting and also sets out the weekly regulated contract offer process, consistent with the Wholesale Contract Regulatory Instrument (see table above).
The Regulator is responsible for monitoring and reporting on the compliance of Hydro Tasmania with the Instrument and the Guideline. Accordingly, the Guideline will be supported by compliance monitoring action, as appropriate, consistent with the Regulator's Compliance Enforcement Policy.
In accordance with the Regulatory Reporting Guideline, regulatory audits of the weekly offer and scaling process will also be conducted on a periodic basis to ensure that they comply with the requirements set out in the relevant regulatory instruments.
The Regulator has also released a Statement of Regulatory Intent which sets out, amongst other things, the conditions under which, and the process whereby, the Regulator may step in and fix regulated wholesale contract prices.
The Regulator has also developed a set of performance indicators to support the wholesale regulatory framework which are reflected in Section 8 of the Electricity Supply Industry Performance and Information Reporting Guideline.
Determinations made by the Regulator in accordance with the Wholesale Contract Regulatory Instrument
Updated Schedule 1 values
On 14 September 2018 the Regulator released updated values for Schedule 1 of the Wholesale Contract Regulatory Instrument. The updated Schedule 1 values apply from the contract run of 18 September 2018 onwards.
Release of the Regulator's Approach to updating the inputs in Schedule 1of the Wholesale Contract Regulatory Instrument
On 31 August 2017, the Regulator released its Approach to updating the inputs in Schedule 1 of the Wholesale Contract Regulatory Instrument. The updated Schedule 1 values apply from 5 September 2017.
Schedule 1 of the Wholesale Contract Regulatory Instrument contains a number of inputs set by the Regulator. The inputs are used in calculating the price of, and volume of electricity in, regulated contracts offered by Hydro Tasmania. During the 2016 Wholesale Contract Regulatory Instrument pricing investigation the Regulator decided to review the inputs and consult on the proposed approach to updating the input values.
On 24 July 2017, the Regulator published its Schedule 1 update - Consultation Paper which contains the Regulator’s proposed updated values for the inputs and the proposed method to update the values in the future. The Regulator sought submissions from interested parties with consultation closing on 14 August 2017. One submission was received from Hydro Tasmania.
New Committed Wind Generation Values
In the Wholesale Contract Regulatory Instrument and in the associated Wholesale Pricing Model, New Committed Wind Generation is used in conjunction with Historical Wind Generation to calculate Forecast Wind Generation. In turn, Forecast Wind Generation is used in determining the Tasmanian Energy Balance for each Quarter.
On 5 October 2016 Hydro Tasmania sought the Regulator's determination of updated New Committed Wind Generation values for the purpose of calculating weekly regulated wholesale contract prices in accordance with the Instrument. This request was made as a consequence of the Musselroe Wind Farm having been commissioned for more than three years ie in the Instrument, wind farm generation is treated as New Committed Wind Generation for three years from the farm's commissioning date.
On 19 October 2016, the Regulator determined that, for the purposes of clause 9.3 of the Instrument and in accordance with the requirements set out in clause 28.1 of the Instrument, the New Committed Wind Generation values for each quarter should be changed to zero. The Regulator made this determination as, in the most recent Statement of Opportunities published by the Australian Energy Market Operator, there is no new Tasmanian wind generating capacity that is classified as "committed". The Musselroe Wind Farm's generation for the last 12 quarters has also been added to Historical Wind Generation.
These changes apply for the calculation of the weekly wholesale contract pricing offers on 25 October 2016 and future pricing offers until the Regulator advises otherwise.
Approvals made by the Regulator in accordance with the Wholesale Contract Regulatory Instrument
Total Existing Capacity Volume - Alternative Methodology
On 29 May 2014, the Regulator approved the following alternative methodology in accordance with clause 24.2(a) of the Wholesale Contract Regulatory Instrument. The Regulator's approval followed a period of public consultation on the proposed change.
|The Total Existing Capacity Volume for a Quarter is to be calculated using the following methodology.|
The Total Existing Capacity Volume for a Quarter is equal to the largest Net Capacity Contract Volume for a Calculation Period in a Quarter. The Net Capacity Contract Volume for each Calculation Period is equal to the sum of the estimated capacities for all Tasmanian contracts that apply in respect of that Calculation Period, in MW. When estimating the capacity of a contract for a Calculation Period, Hydro Tasmania will make a reasonable forecast or estimate based on historical data and other relevant information.
For the purposes of this calculation, a volume of electricity the subject of a Selling Tasmanian Hedge Contract is taken to be a positive amount, and a volume of electricity the subject of a Buying Tasmanian Hedge Contract is taken to be a negative amount
This methodology will remain in effect unless it is revoked by the Regulator or it is substituted by another alternative methodology approved by the Regulator under clause 24.2(a) of the Wholesale Contract Regulatory Instrument.
The methodology relates to how Hydro Tasmania calculates the volume of electricity it has sold in capacity terms, known as 'Total Existing Capacity' under the Wholesale Contract Regulatory Instrument.
The Regulator sought comments on its intention to approve an alternative methodology. To assist stakeholders in this regard, the Regulator released a Consultation Paper
.The Regulator did not receive any submissions.Approval of a schedule to an existing International Swaps and Derivatives Association (ISDA) Master Agreement as a separate standard formBackground
Section 43G of the Electricity Supply Industry Act 1995
(the Act) requires the Regulator to approve the types of regulated contracts that Hydro Tasmania is required to offer (such as financial swaps and caps) together with the standard form for each approved contract.
For the purposes of section 43G(1)(a) of the Act, Clause 3 of the Wholesale Contract Regulatory Instrument (the Instrument) lists the following four approved types of regulated contract that are available to retailers to manage the financial risks they face when retailing electricity to small customers in Tasmania:
- Load Following Swap Contract;
- Baseload Swap Contract;
- Peak Period Swap Contract; and
- Baseload $300 Cap Contract.
For the purposes of section 43G(1)(b) of the Act, Clause 4 of the Instrument sets out the following approved standard forms for each of the approved contract types:
- ISDA 2002 Master Agreement;
- the Hydro Tasmania Schedule (for each authorised retailer); and
- a Confirmation (for each contract type).
These documents have the following hierarchy and objectives:
- the ISDA Master Agreement is a pro-forma high level agreement used to document over the counter (OTC) derivative agreements. It sets out general terms and conditions necessary to properly allocate the risks of the transactions between the parties but does not contain any commercial terms specific to individual transactions. Each time that a transaction is entered into, the terms of the master agreement apply automatically and do not need to be re-negotiated.
- the parties add to or modify the terms of the ISDA Master Agreement through the use of a Schedule to the ISDA Master Agreement. The Schedule includes, amongst other things, clauses dealing with, credit, termination, the delivery of documents and addresses for the service of notices.
- the Confirmation sets out details specific to individual transactions entered into under the Schedule.
The Instrument permits separate standard forms of each contract to be approved by the Regulator. In deciding, under section 43H(2)(a) of the Act, whether to approve a separate standard form under section 43G, the Regulator must take into account the principle that the terms and conditions of the standard form are generally similar to those offered for the types of contracts used in the national electricity market (NEM).
Parties wishing to use an existing Schedule as a separate standard form of the Hydro Tasmania Schedule to apply to the four approved regulated contract types must seek the Regulator's approval.
If granted, the approval applies to Approved Financial Risk Contracts entered into between the parties. Additionally, the approved separate standard form must not contain any alterations other than the Permitted Alterations or Required Alterations as noted in Clauses 5.1(e)(i), (ii) and (iv) and 5.1(f)(iii) of the Instrument respectively.Approvals
The following table sets out the Regulator's approvals of separate standard forms in accordance with Clause 5.1(c) of the Instrument:
|Parties*||Date of application for approval||Date of Regulator's approval|
|Hydro Tasmania and Aurora Energy||13 May 2014||24 June 2014|
| Hydro Tasmania and ERM Power|| 17 March 2015|| 27 March 2015|
|Hydro Tasmania and Macquarie Bank||28 April 2015||15 May 2015|
* Each of the listed entities are parties to an existing ISDA 2002 Master Agreement and an existing Schedule ie Hydro Tasmania and Aurora Energy have an existing ISDA master agreement and an associated Schedule as do Hydro Tasmania and ERM Power and Hydro Tasmania and Macquarie Bank.