Methodology for the Allocation, Distribution and Recovery of Settlements Residue

Matters under consultation

AEMO is proposing to merge the Methodology for the Allocation and Distribution of Settlements document with the NEM Transmission Network Service Provider Negative Settlements Residue Procedure. While the proposed changes primarily impact TNSPs, AEMO is publishing this draft for stakeholder feedback to confirm its readability and understandability.

The proposed change reflects the National Electricity Amendment (Inter-regional settlements residue arrangements for transmission loops) Rule 2025 No. 9 – (IRSR Rule).

The IRSR Rule will:

• reflect Project Energy Connect (PEC) in NEMDE through the creation of a new regulated interconnector between NSW and SA. This creates a transmission loop across regional boundaries between NSW, SA and VIC that requires the inclusion of a loop constraint that represents power flow across interconnectors.
• introduce subsequent changes to inter-regional settlements residue arrangements that are dependent on inclusion of the loop constraint. Key features are the allocation of residues to directional interconnectors in the loop based on the net trade between regions.

The transmission loop introduced through PEC is subject to the new IRSR allocation arrangements introduced under the transmission loop rule change. The existing methodology will continue to apply to interconnectors that are not part of the loop. TNSPs are impacted by these changes because, under the IRSR Rule, if there is a net negative amount, the negative residue is allocated to the TNSPs in the loop in proportion to each region's share of consumed energy, measured over the previous 52 weeks.

AEMO proposes to merge the Methodology for the Allocation and Distribution of Settlements Residue document with the NEM Transmission Network Service Provider Negative Settlements Residue Procedure to better align with clause 3.6.5 of the NER, which sets out the framework for the allocation and distribution of settlements residue.

AEMO considers there is significant overlap between the two documents. Merging them will provide a single document describing how AEMO allocates and distributes settlements residue, including the allocation methodology and the recovery of negative settlements residue amounts from Transmission Network Service Providers (TNSPs). Earlier this year, AEMO published a reference paper for settlements residue auctions and the distribution of inter-regional settlement residue in May 2026. Content from this paper has been incorporated into this new, merged document.

In line with AEMO’s now completed consultation on amendments to the NEM TNSP Negative Settlements Residue Procedure for the Shortening the Settlement Cycle (SSC) rule change, AEMO will allow TNSPs an additional business day to make negative settlements residue payments during the loop transition period (NER 11.188). This applies to amounts relating to billing periods that fall wholly or partly between 1 October 2026 and 31 October 2026 (inclusive).

AEMO considers that the changes to the Methodology for the Allocation, Distribution and Recovery of Settlements Residue under the IRSR Rule:

1. do not change the substantive rights or obligations of participants
2. are not expected to involve material cost for AEMO; and 
3. are straightforward and not contentious in nature, and generally reflect information already made available to stakeholders.