Australian Energy Regulator Issues Guidance on Auto-Bidding & Third-Party Compliance Services

Key Takeaways

• Regulator Issues New Guidance: The Australian Energy Regulator (AER) has published a Compliance Bulletin outlining best-practice expectations for electricity market participants using automated bidding software and for those engaging third-party service providers.
• Automation Driving New Compliance Risks: The AER said the growing use of auto-bidding systems and increased reliance on third-party providers can increase the risk of non-compliance with the National Electricity Rules if appropriate safeguards are not in place.
• Governance and Due Diligence Emphasized: The guidance sets expectations for oversight of automated bidding, due diligence when engaging third-party service providers, and the maintenance of contemporaneous records for automated rebids.
• Compliance Responsibility Remains with Participants: The regulator stressed that market participants remain responsible for complying with the National Electricity Rules, even when bidding decisions are generated by algorithms or outsourced providers.

Deep Dive

The bids arriving in Australia's wholesale electricity market increasingly have no trader behind the keyboard. They are generated by software following predefined instructions, often reacting to changing market conditions before a person has time to intervene. The technology has become common enough that the Australian Energy Regulator decided it was time to address not the software itself, but the responsibilities that survive its use.

In guidance released Wednesday, the regulator outlined its expectations for electricity market participants using automated bidding software and for companies relying on third-party service providers to carry out market or compliance-related functions.

The timing reflects what the regulator says it has observed over recent years: a steady increase in automated bidding alongside growing dependence on third-party service providers. Auto-bidding systems operate by applying predefined rules through computer algorithms that can determine whether to submit a bid, when to submit it, the price or capacity offered, or how a bid should be managed after it reaches the market. Those decisions may occur with little or no human intervention.

There is nothing inherently problematic about that. In fact, the AER explicitly acknowledges the advantages automation can bring to the electricity market. Software reacts faster than people, executes instructions consistently, and can manage a volume of decisions that would overwhelm even experienced trading desks. But the regulator argues that those benefits carry a corresponding obligation to build safeguards around the systems making those decisions. Without them, the risk of breaching the National Electricity Rules increases.

The Compliance Bulletin does not create new obligations. Instead, it explains how the regulator expects existing obligations to be met when bidding decisions originate with algorithms or when operational responsibilities are outsourced. That distinction matters. The guidance is not asking participants to rethink automation; it is asking them to rethink governance.

Much of the bulletin is concerned with questions that become easy to overlook once software enters the process. What level of oversight should exist over an automated bidder? How thoroughly should a market participant assess a third-party provider before entrusting it with compliance-sensitive functions? If an automated rebid later comes under regulatory scrutiny, what records exist to explain why the algorithm acted when it did?

The AER's answer is consistent throughout that responsibility cannot be delegated simply because execution has been automated or outsourced. Market participants remain accountable for ensuring bids and rebids comply with the National Electricity Rules, regardless of whether those actions originate with an employee, an algorithm, or an external service provider.

The regulator is encouraging both electricity market participants and third-party providers to measure their current practices against the new guidance and strengthen governance, oversight, and recordkeeping where necessary.

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