Market Reviews: Completed

Review of the national framework for distribution reliability

Reference:
EPR0033
Reviewed by:
AEMC
Date completed:
27-Sep-2013
Overview

On 27 September 2013, the Australian Energy Market Commission (AEMC) published its final report on its review of the national framework for distribution reliability, following a request from the Standing Council on Energy and Resources (SCER).

Overview

On 27 September 2013, the Australian Energy Market Commission (AEMC) published its final report on its review of the national framework for distribution reliability, following a request from the Standing Council on Energy and Resources (SCER).

The Australian Energy Market Commission recommended a framework which promotes greater efficiency, transparency, and community consultation in how reliability levels are set and provided across the NEM. In particular the framework would:

  • Compare the costs of building and maintaining electricity networks against reliability outcomes. The costs to customers of interruptions to supply can then be used to guide the setting of reliability targets. This would provide for a more economically efficient way to determine the appropriate levels of reliability in distribution networks, and could lead to more efficient investments by network businesses and electricity prices that are consistent with the needs of customers.
  • Provide an independent process that separates the body responsible for providing reliability from the body responsible for setting reliability targets.
  • Set reliability targets ahead of the need to invest to provide transparency and certainty to market participants regarding the level of reliability they can expect to receive and increase the accountability of network businesses for the level of reliability provided.
  • Provide consistent national expression of the measurements of reliability performance in distribution networks will allow customers to better understand how the cost of electricity relates to the levels of reliability provided. It will also allow the Australian Energy Regulator (AER) to better benchmark reliability performance and improve its ability to determine revenues that are consistent with the efficient delivery of required levels of reliability.

The final report explains the Commission’s recommended framework for distribution reliability. The key features of the framework are:

  • an economic assessment process to inform the setting of reliability targets. This will involve evaluating the way network costs vary with different levels of reliability and explicitly assessing the expected costs of investments against the value that customers place on reliability and the probability of interruptions;
  • a transparent and public process for setting reliability targets which requires the assessment and considerations used in setting reliability targets to be published;
  • decision making on reliability targets by a body which is independent of the distribution network service providers (DNSPs);
  • expressing distribution reliability targets based on the duration and frequency of unplanned interruptions;
  • jurisdictional ministers being responsible for determining the appropriate level of reliability with the option to delegate responsibility to the Australian Energy Regulator (AER) or a jurisdictional body;
  • the ability for jurisdictional ministers to specify additional reliability requirements for areas of economic or social importance;
  • greater opportunities to consult with customers and consider community preferences;
  • the use of the Service Target Performance Incentive Scheme (STPIS) to encourage DNSPs to perform to the level of their reliability targets; and
  • national reporting and auditing of distribution reliability performance and planning.

The AEMC was also requested by SCER to develop a framework for transmission reliability in parallel with the distribution network. The final report for the transmission workstream of the review was published on 1 November 2013.

Further details on the transmission workstream of the review can be found here.

Background

On 8 February 2013, the AEMC received a request from SCER to undertake a review to develop national frameworks and methodologies for electricity transmission and distribution reliability across the National Electricity Market (NEM).

This review had two workstreams:

  • a review to develop a national framework and methodology for transmission reliability in the NEM (transmission workstream); and
  • a review to develop a national framework and methodology for distribution reliability in the NEM (distribution workstream).

These two workstreams were undertaken in parallel and where possible the AEMC sought to ensure that there was consistency between the frameworks which werer developed for transmission and distribution networks.

This review formed part of a package of energy market reforms agreed to by the Council of Australian Governments and SCER in late 2012 to develop nationally consistent frameworks for transmission and distribution reliability and to allow jurisdictions to transfer the responsibility for applying these frameworks to the Australian Energy Regulator (AER).

This review built on previous work undertaken by the AEMC under the:

  • Review of transmission reliability standards, which was finalised in November 2010 and was responded to by SCER in November 2011;
  • the New South Wales workstream of the Review of distribution reliability standards and outcomes, which was finalised in August 2012; and
  • the national workstream of the Review of distribution reliability standards and outcomes, which was further progressed through the distribution workstream of this review.

Terms of reference for the distribution workstream

Under the distribution workstream of the review, the AEMC was requested by SCER to:

  • develop a national approach to expressing distribution reliability outcomes;
  • develop a nationally consistent approach for establishing distribution reliability settings;
  • develop a mechanism for measuring and regularly updating the value of customer reliability for each distribution network with the Australian Energy Market Operator and in consultation with jurisdictions;
  • consider options to take into account local circumstances which may require different levels of reliability;
  • develop a nationally consistent approach to reporting on distribution reliability outcomes on a regular basis; and
  • ensure that any proposed framework and methodology makes explicit the opportunity for jurisdictions to transfer responsibility for applying the framework to the AER.

A copy of SCER’s terms of reference can be found below.

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