In May 2010 the IMO commenced a review of the Market Procedure that details the methodology and processes for determination of the Maximum Reserve Capacity Price (MRCP). The review was conducted in accordance with clause 4.16.9 of the Market Rules, which required the IMO to review the Market Procedure at least once in every five year period.
To assist in undertaking this five year review, the Market Advisory Committee (MAC) agreed that the MRCP Working Group (MRCPWG) be established to consider, assess and develop any necessary changes to the Market Procedure.
The MRCPWG held its last meeting on 20 June 2011 and has now completed its review. The review culminated in the development of a Procedure Change Proposal to amend the Market Procedure: Maximum Reserve Capacity Price.
The Procedure Change Proposal: 5-Yearly Review of the Methodology and Process for Determining the Maximum Reserve Capacity Price (PC_2011_06) was submitted on 6 September 2011 and the Procedure Change Report was published on 21 October 2011. The amended Market Procedure commenced on 24 October 2011.
Please note that the MRCP is now known as the Benchmark Reserve Capacity Price and responsibility for the Market Procedure: Maximum Reserve Capacity Price has transferred to the ERA.
Working Group Terms of Reference
The Terms of Reference of the MRCPWG and MRCP Scoping Questions are available below.
Working Group Membership
||Representing on the Working Group
||Economic Regulation Authority (Observer)
Meeting Papers and Minutes
Meeting 1 (31 May 2010)
Meeting 2 (22 June 2010)
Meeting 3 (2 July 2010)
Meeting 4 (23 August 2010)
Meeting 5 (15 September 2010)
Meeting 6 (20 January 2011)
Meeting 7 (17 February 2011)
Meeting 8 (24 March 2011)
Meeting 9 (5 May 2011)
Meeting 10 (20 June 2011)
Review of Weighted Average Cost of Capital (WACC)
As part of the MRCPWG's review, the IMO appointed Pricewaterhouse Coopers to undertake a review of the methodology for determining the Weighted Average Cost of Capital (WACC).
Pricewaterhouse Coopers was required to:
- Review the constituent WACC parameters, noting changes in the regulatory environment that have occurred since the previous review (in 2007);
- Recommend changes to parameter values and revisions to the methodology where appropriate;
- Consider the way in which the WACC is applied within the calculation of the MRCP to compensate investors for incurred costs; and
- propose amendments to the Market Procedure for: Determination of the Maximum Reserve Capacity Price.
The final report by Pricewaterhouse Coopers if provided below.
Review of Transmission Connection Cost Methodology
The IMO appointed Sinclair Knight Merz (SKM) to undertake a review of the calculation methodology to be applied in determining the deep connection cost component of the MRCP.
SKM was required to:
- analyse any assumptions made by Western Power and the IMO in previous deep connection cost estimates and recommend the adoption or replacement of those assumptions; and
- if appropriate, propose an alternative methodology to be used by Western Power for estimating the deep connection costs, explicitly stating all assumptions made in the methodology.
The final report by SKM is provided below (last updated 23 June 2011 with additional commentary in Section 9.9).