Maximum Reserve Capacity Price Working Group

Each year the IMO is required to conduct a review of the Maximum Reserve Capacity Price (MRCP). The Market Procedure for the determination of MRCP details the methodology and  process for determining the MRCP. The IMO is required to review this Market Procedure at least once in every five year period (Clause 4.16.9 of the Market Rules).

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 change to the Market Procedure.

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Procedure Change

The MRCPWG held its last meeting on 20 June 2011 and has now completed its review. This review culminated with the development of a Procedure Change Proposal to amend the Market Procedure: Maximum Reserve Capacity Price.

The Procedure Change Proposal PC_2011_06 was submitted into the Procedure Change Process on 6 September 2011 and the Final Report was published on 21 October 2011. The amended Market Procedure has now commenced.

The Procedure Change Proposal and related documents can be found on the PC_2011_06 page.

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Working Group Terms of Reference

The Terms of Reference of the MRCPWG and MRCP Scoping Questions are available below.

Working Group Membership

Member	Representing on the Working Group
Allan Dawson	IMO (Chair)
Greg Ruthven	IMO
Corey Dykstra	Market Customer
Stephen MacLean	Market Customer
Steve Gould	Market Customer
Patrick Peake	Market Generator
Shane Cremin	Market Generator
Brad Huppatz	Market Generator
Adam Boyd	New Investor
Pablo Campillos	DSM Aggregator
Neil Gibbney	Western Power
Neil Hay	System Management
Chris Brown	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)

Subsequent analysis

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).