Inter-regional Transmission charging

28 February 2013

Today’s final determination and rule introduces an inter-regional transmission charge to be levied between transmission businesses in neighbouring regions.

The new arrangements will better reflect the benefits transmission provides in supporting energy flows between regions in the National Electricity Market (NEM). They will not affect the total revenues earned by each transmission business; only how those revenues are recovered from consumers across the NEM.

Today’s determination relates to the inter-regional transmission charging rule change request put forward by the Ministerial Council on Energy (since replaced by the Standing Council on Energy and Resources).

Before this rule consumers only paid transmission charges relating to transmission assets located within their own region.

Modelling commissioned by the AEMC shows an inter-regional charge formed a relatively small proportion of the overall revenues of transmission businesses. For the period modelled (2009-2012) the net charge paid or received by a region ranged from approximately 1 per cent to 6 per cent of allowable revenues (on average over the three years).

The average residential consumer’s energy bill is likely to increase or decrease by less than 1 per cent as a result of the introduction of the inter-regional transmission charge.

Final rule

This determination introduces an inter-regional transmission charge - a modified load export charge - to be levied between transmission businesses in neighbouring regions and recovered from consumers.

The final rule also sets out the manner in which the transmission businesses must amend their pricing methodologies (and the AER must update its transmission pricing guidelines) in order to incorporate the inter-regional transmission charge.

Introducing a load export charge will provide the following key benefits to the NEM: 

  • Transmission businesses will have stronger incentives to pursue efficient transmission investments for which the costs fall predominantly in their own regions but the benefits fall in neighbouring regions. This is because they can recover some of the costs of the investment from consumers in the neighbouring region.
  • Prices consumers face for transmission services will be more reflective of the actual costs incurred in providing those services.
  • Credibility of, and confidence in, regulatory arrangements is improved as the costs of interregional transmission capacity are allocated to the regions that derive benefits from such capacity.

Background

Currently in the NEM consumers do not contribute to any of the costs of transmission assets located in neighbouring regions.

The need for an interregional transmission charge was first considered in depth in the National Transmission Planner (NTP) Review of 2008, which set out a number of possible high level options for such a charge.

The MCE subsequently requested that the Commission further consider the options for an interregional charging mechanism as a part of the Review of Energy Market Frameworks in light of Climate Change Policies (Climate Change Review). In the final report on this review, the AEMC recommended the introduction of a load export charge.  In its policy response to the Climate Change Review, the MCE supported, in principle, the introduction of the load export charge and subsequently submitted this rule change request to the AEMC for consultation.

The AEMC formally commenced consultation on the inter-regional transmission charging rule change request on 13 May 2010.

On 2 December 2010, the AEMC made a draft rule determination and draft rule for implementing the load export charge – implemented using the existing pricing methodologies of transmission businesses.  In submissions to the draft rule determination, stakeholders raised a number of concerns regarding the load export charge. In particular that the use of different inter-regional charging methodologies by transmission businesses could impact on the efficiency of the arrangements.

On 25 August 2011, the AEMC published a discussion paper to assist in the development of a more uniform inter-regional transmission charging methodology. The discussion paper proposed various options for how a more uniform approach could be implemented.

The AEMC engaged ROLIB Pty Ltd to undertake modelling of the key options outlined in the discussion paper. On 12 October 2012 the AEMC published the results from the modelling.

Following further analysis and modelling, and taking into account submissions received, the Commission published a second draft determination in which it decided that the modified load export charge best met the National Electricity Objective. This decision is now confirmed in the final determination.

The rule change request

On 15 February 2010, the Ministerial Council on Energy submitted a rule change request to the AEMC seeking to implement an interregional transmission charge in the form of a load export charge. A load export charge from one region to another is calculated as if the neighbouring region operates as a load at the point of interconnection between the regions (ie the load export point). It seeks to measure the degree to which one region uses a neighbouring region’s assets for supporting electricity imports.  Some of the costs of these assets (more precisely the prescribed transmission use of services or TUOS provided by the assets) are then allocated to consumers in the importing region.

Commission’s decision to make a more preferable rule

The Commission examined a range of interregional charging options since the rule change request put forward by the MCE. Having regard to the issues raised by the rule change request, the Commission has made a preferable rule which it considers better contributes to the Electricity Objective because it:

  • provides more efficient price signals;
  • is calculated and applied in a more consistent way;
  • provides for greater transparency and regulatory stability; and
  • is more proportionate with respect to consumer impacts.

For information contact:

AEMC Chairman, John Pierce (02) 8296 7800

Media: Communication Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817

Date: 28 February 2012