Australia: Attention generators and retailers: How will the proposed Five Minute Settlement rule change impact on your electricity hedges?

The proposed five minute settlement rule change may trigger processes or events under derivatives that alter the risk profiles of the parties to those transactions.

On 11 April 2017 the Australian Energy Market Commission (AEMC) released its Directions Paper on the proposed Five Minute Settlement rule change, with submissions due by 18 May 2017. We consider below how the proposed rule change may impact parties to electricity derivatives under the common terms of those financial instruments.

What is the proposed rule change?

In December 2015, Sun Metals Corporation Pty Ltd submitted a rule change request to the AEMC, proposing that the time interval for financial settlement in the wholesale electricity market be reduced from the current 30 minutes to five minutes. The purpose of this change is to better align financial settlement with the five minute timeframe for electricity dispatch.

The proposed rule change involves:

  • compulsory five minute settlement for generators, scheduled loads and market interconnectors; and
  • a choice of either a five or 30 minute settlement interval for retailers and large consumers.

The assessment of this rule change request is being undertaken in the context of a series of structural changes in Australia's energy market.

The AEMC Directions Paper

Given the significance and potential implications of the rule change request, stakeholders requested that the AEMC undertake an additional round of consultation before making a draft decision. The Directions Paper was released in response to this feedback, and sets out the AEMC's initial position on the rule change request.

Why is this important?

Electricity derivatives generally use the National Electricity Market (NEM) spot price for the applicable region as the reference price for that transaction. The NEM spot price is based on a half-hour trading interval, which is the average of the six dispatch prices for each five minute period during the preceding half hour.

If the physical electricity market adopts a five minute settlement and ceases to publish the 30 minute trading interval spot price as a result of this rule change, while the derivatives contracts continue to reference 30 minute price trading intervals, then the risks and benefits associated with the derivatives can be impacted.

These aspects of the potential rule change should be further considered by affected parties and where necessary, submissions made to AEMC to minimise impact to the existing derivative market.

Contractual implications of a five minute settlement

Financial instruments may be over-the-counter (OTC) or exchange traded. We highlight some common contractual events and processes that may be triggered by the implementation of a five-minute settlement below.

OTC transactions are often based on, or import the terms of, the International Swaps and Derivatives Association (ISDA) forms. Under the 2002 ISDA Master Agreement and the 2005 ISDA Commodity Definitions, the five minute settlement may constitute the following Market Disruption Events:

  • Price Source Disruption: "failure of the price source to announce or publish the Specified Price (or the information necessary for determining the Specified Price) for the relevant Commodity Reference Price"; or
  • Material Change in Formula: "the occurrence of a material change in the formula for or method for or the method of calculating the relevant Commodity Reference Price".

Triggering these change event provisions leads to various fallback options that apply to resolve the impact of the event, including negotiation, termination, or the selection of a fallback reference price (among other options that are specified to apply to the particular transaction).

Under other forms of instruments, the five minute rule change may trigger:

  • a change in law; or
  • a change in pricing formula or method.

Depending on the terms of the instrument, these events could lead to re-negotiation of pricing aspects of the instrument or even termination rights. In some cases the parties may simply accept that the five minute trading interval price be adopted instead of the 30 minute trading interval price or that the 30 minute price be calculated by reference to the published 5 minute intervals. However, parties will need to do careful analysis of these derivative contracts to determine whether the revised shorter trading interval pricing will deliver the same outcome for the contract.

What you need to do...

The nature of financial instruments for electricity transactions is to manage the exposure to risk as a result of the physical electricity market. Parties to financial instruments for electricity transactions need to consider how the adoption of a five minute settlement could affect their risk profiles under existing and future instruments.

We recommend that parties to financial instruments for electricity transactions:

  • Keep yourself informed of further developments in the five minute settlement rule change.
  • Consider how the proposed rule change could impact on your operations and existing contracts (including any potential contractual triggers and risk to business).
  • Consider how best to cater for the possibility of the implementation of this rule change in your future transactions.
  • Make a submission to the AEMC if the proposed rule change will have consequences on your operations or contracts. Submissions on the immediate and future costs and benefits of the five minute settlement are due by 18 May 2017.

What is next?

The AEMC will use the feedback to Directions Paper in the its draft decision on the rule change request. Stakeholders will be able to provide final comments on the draft decision.


Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions