Compensation Frameworks Improvements
Background
In June 2022, extreme market conditions in the NEM stress-tested the calculation, processes and administration of all three NEM compensation frameworks, namely:
- Administered pricing
- Directions
- Market suspension.
The AEMC subsequently self-initiated a review into electricity compensation frameworks, which was completed on 12 December 2024.
On 9 July 2026, the Australian Energy Market Commission (AEMC) published a draft determination and draft rule titled Improving compensation frameworks. The draft rule proposes changes to the compensation arrangements that apply when administered pricing, market suspension or AEMO directions affect the operation of the National Electricity Market (NEM).
Scope
AEMO has established the Compensation Frameworks Improvements project under the NEM Reform program to carry out the procedure and system changes arising from the rule and support industry to readiness for the changes.
AEMO will consult with industry on implementation activities that support more consistent assessment criteria, information requirements and compensation outcomes across the three frameworks.
The draft rule has four main implementation components:
- Changes to the calculation and assessment of compensation payments, including a new methodology for preliminary compensation and greater alignment of compensable costs (such as direct costs and opportunity costs) across the three frameworks.
- Changes to compensation cost recovery, including more targeted allocation of administered pricing compensation costs and clarification of the intervals used to recover directions compensation.
- Changes to governance and administration, including an expanded role for AEMO in receiving and assessing administered price compensation claims, and more consistent arrangements generally for claims, supporting information and independent experts.
- Other changes to clarify and consolidate the compensation frameworks, including a new objective for directions compensation and the eventual consolidation of the compensation provisions in the NER.
Staged implementation
The draft rule proposes a staged implementation schedule from July 2027 to October 2028. This reflects the different levels of complexity across the proposed changes and allows earlier delivery of changes that can be implemented through guideline or process updates. Changes requiring new or materially enhanced AEMO systems are scheduled later. Some changes have also been grouped with later stages where they depend on the broader claims, calculation or cost recovery framework being in place.
Industry engagement
This initiative forms part of the NEM Reform Program and market participants can get involved by visiting:
Reference information
Further information
For further information please contact [email protected].