Glossary
Events where surplus or additional capacity is made available through an auction process. Capacity auctions take place in the Victorian Wholesale Gas Market to enable end users to adjust their Average Maximum Daily Quantity levels. Capacity auctions are also used in the Western Australian Wholesale Electricity Market, where the Independent Market Operator purchases capacity to ensure that peak demand can be safely met. This occurs where those who purchase electricity have not secured sufficient capacity credits under all forecast circumstances.
In the Western Australian Wholesale electricity market, capacity credits are tradable certificates that Market Customers must purchase to ensure there is sufficient capacity to meet their actual peak demand.
A generic principle that allows for the efficient and equitable allocation of costs to parties that cause the cost to be incurred in the first instance. Alternative terms with slightly different meanings are the Beneficiary Pays Principle (where those who benefit initially bear the costs) and the User Pays Principle (where end users ultimately bear all the costs incurred in providing the services they use).
Refers to a situation where customers are legally entitled to choose their energy retailer.
A form of gas market design where gas shippers and pipeline owners secure pipeline capacity through bilateral contracts. The differences between contracted and actual capacity are dealt with under the terms and conditions of the contract. See also Market Carriage and Market Design.
A financial hedging arrangement, where two parties agree to trade a certain volume of a product for a set price. These parties do not physically exchange this product in the ‘hedge market’. The product is purchased in a separate ‘physical market’ (e.g. a wholesale electricity ‘spot market’). If the price is higher or lower than the agreed price, then the parties settle the difference between the ‘hedge contract’ and ‘physical market’ prices. See also Electricity Futures Contract and Spot Market.
The maximum level of demand specified in a network connection agreement or energy supply contract, for which a distribution network service provider will levy a charge. The charge is linked to an increment of network system capacity or load (demand). Penalties may apply should the end user exceed this maximum demand, and the distribution network service provider may increase the contract maximum demand for a forthcoming period of up to 12 months.
An approach that seeks to align tariff prices with an estimate of actual costs attributed to particular tariff components. There is no uniformly accepted methodology for achieving this objective, although the National Electricity Rules and National Gas Rules specify general pricing principles for network service tariffs that reflect generally accepted attributes of the approach.
A premium to the wholesale electricity price that retailers charge end users. The magnitude of this premium depends on the variability and predictability of an end user’s demand profile over time. All else being equal, retailers will charge end users more where they have a more variable and a more volatile (i.e. less predictable) load profile.