The Australian Energy Market Operator (AEMO) submitted a rule change request proposing a new method for allocating inter-regional settlements residue (IRSR) in transmission loops. A transmission loop will be formed in the National Electricity Market (NEM) when Project EnergyConnect Stage 2 (PEC) becomes operational. The rule change is considering the appropriate arrangements for allocating IRSR in transmission loops to support the realisation of PEC’s expected consumer benefits.

On 19 June 2025, the AEMC published a directions paper seeking feedback on a proposal for ‘netting off’ IRSR in transmission loops. We also published indicative rule drafting for feedback.

The proposed approach would involve deducting negative IRSR from positive IRSR on the looped interconnectors in each dispatch interval, before calculating settlements residue distribution (SRD) unit payouts. We propose that any net negative IRSR for the loop would be allocated to Co-ordinating Network Service Providers (CNSPs) in proportion to regional demand, and SRA proceeds (and any unsold SRD units) would continue to be allocated to the importing CNSP.

The Commission considers that a netting off approach for allocating IRSR in transmission loops would best promote the long-term interests of consumers, compared to alternative options we considered. The proposed approach would prevent consumers from being exposed to an unhedged risk of negative IRSR when the loop is net positive, and would allow the interdependencies of IRSR on each arm of the loop to be managed by market participants (typically retailers and generators) who purchase SRD units.

We published a draft determination and draft rule in December 2024. The draft rule sought to mitigate the risk by sharing negative IRSR between the looped regions. However, based on stakeholder feedback and our further analysis we now consider the draft rule is not the appropriate approach to manage IRSR in transmission loops.

On 20 March 2025, the Commission extended the date for the final determination to 25 September 2025, enabling other options including the netting off approach to be considered. We also held a technical working group (TWG) in April 2025 to seek stakeholder input on the options under consideration.

Next steps

We are seeking feedback on the netting off proposal. Submissions to the directions paper are due by 10 July 2025.

The final determination is due to be published on 25 September 2025. We understand that this timing will allow the outcomes of the AEMC’s decision to be put in place by AEMO ahead of the new transmission loop going ‘live’.