The compensation processes following the unprecedented interventions by the Australian Energy Market Operator (AEMO) in the National Electricity Market (NEM) between 12 and 23 June 2022 are now well underway.

AEMO has indicated it will nominate an independent expert under clause 3.12.3 of the National Electricity Rules (NER) to determine the additional compensation claims for both Directed Participant Compensation and Market Suspension Compensation in relation to the June 2022 events. That process is likely to be of unprecedented complexity and scope given the scale of the market interventions.

Now is the time to finalise a holistic strategy for approaching this phase of the compensation processes. This includes considering potential for further disputes for claimants dissatisfied with a final report or final assessment of the independent expert.

An update on each of the three main forms of compensation to which generators may be entitled is set out below.

Administered Pricing Period

Affected generators have made their claims under clause 3.14.6 of the NER for compensation arising from the Administered Price Cap.

AEMC will publish a notice on its website advising that it has formally commenced assessment of the claims it has received. In the meantime, if it has not already done so, the AEMC will approach claimants for more information in relation to their claims (including their proposed methodology to determine its opportunity costs, if claimed).

For direct cost only claims, the AEMC then has 45 business days to publish its final decision as to whether compensation should be paid and the amount that should be paid.

For direct and opportunity cost (or only opportunity cost) claims, the AEMC has 35 business days to publish the claimant's and AEMC's proposed methodologies for determining the claimant's opportunity costs, and an invitation for written submissions (from any person) on AEMC's proposed methodology (by at least 20 business days after the invitation).

Within a further 35 days of the submission closing date, the AEMC must then publish its final decision.

The AEMC acts as an administrative decision-maker in determining this class of compensation, and may engage experts to assist it in its determination. Other than the potential application of judicial review, there is no particular pathway to dispute the AEMC's final decision. Unlike the directed participant and market suspension compensation categories referred to below, there is no provision for expert determination of any additional compensation claimed by a generator. We do not see scope to argue that the dispute resolution process in Chapter 8, Part B of the Rules is applicable in the event that a generator is dissatisfied with the AEMC's final decision.

Directed Participant Compensation and Market Suspension Compensation

Generators will have received AEMO’s notification of its determination of provisional amounts of:

• any Directed Participant Compensation under clauses 3.15.7 of the Rules (for any directions given by AEMO to affected generators in the intervention period); and
• Market Suspension Compensation for the period between 15 and 23 June 2022.

What is the Independent Expert process?

The process resembles a hybrid between a public inquiry and a private expert determination.

All claims arising out of a single AEMO intervention event or market suspension pricing schedule period, or a series of related AEMO intervention events or market suspension pricing schedule periods, are to be determined by the same independent expert as part of the same process. Given the interconnected nature of the June 2022 NEM interventions, it is possible that one independent expert will be appointed to determine all additional compensation claims for the whole of the market in this period. (AEMO may, however, take a narrower view and seek to appoint multiple experts).

The independent expert is to be nominated by 29 August 2022 (for both billing weeks 25 and 26). There is a process to challenge the nomination on certain grounds, following which the determination is to proceed in accordance with an indicative timetable, which can be extended if required. If the default time periods are observed in each determination:

• by 9 November 2022 the expert will publish a draft report regarding the total compensation payable for all claims referred to the expert (subject to confidentiality requirements for individual claimants) and individual assessments to each claimant;
• by 2 December 2022 claimants are to make any submissions;
• the expert must take into account submissions received and meet with claimants if requested;
• by 28 December 2022 the expert must publish a final report and final individual assessments.

What if a generator is dissatisfied with the outcome of the independent expert process?

The independent expert’s final report and each final assessment is 'final and binding’. This means that there is no automatic right of appeal or avenue for further dispute on the basis that a generator disagrees with the expert’s calculation of compensation. However, as with any contractual expert determination process, whether a valid and binding determination has been made may depend on whether the process for determination has been correctly applied.

In the context of the NER, and given the unprecedented scale and complexity of the expert determination processes likely to soon be engaged, there may be scope in appropriate cases to seek to engage the dispute resolution process in clause 8.2 of the NER.

Given the untested expert determination process as applied to Market Suspension Compensation and the interrelationship with potentially various Directed Participants Compensation claims, we are in uncharted waters. We recommend a deliberate strategy that informs all stages of the expert determination process.

Generators should give consideration now to presenting a case for additional compensation that will be persuasive to an independent expert in the process under Chapter 3 of the Rules, as well as an engagement strategy in the expert determination that, as best as possible, preserves the ability to challenge the independent expert's final determination for generators not satisfied with the result.