Rule Change: Open
The Australian Energy Market Commission (AEMC) has published a draft determination and draft rule to address challenges Transmission Network Service Providers (TNSPs) may have in raising finance to proceed with actionable Integrated System Plan (ISP) projects. This is in response to the consolidated rule change request from the Honourable Chris Bowen MP, Commonwealth Minister for Climate Change and Energy (Minister) and Energy Networks Australia (ENA).
Our draft rule is made in the context of the broad consensus that transmission is a critical enabler for the transition to net zero. This transition will require an unprecedented level of investment in, and build of, transmission infrastructure to deliver power from renewable generation and energy storage to consumers, and to deliver infrastructure quickly. The scale of transmission investment required, coupled with the speed of the energy transition, presents challenges for the existing regulatory framework.
The Commission’s draft rule amends the National Electricity Rules (NER) by improving the ability of TNSPs to efficiently access finance, where needed, to deliver actionable ISP projects in a timely and efficient way. The Commission considers that this is in the long term interests of consumers.
We have made a more preferable draft rule
The draft rule would address financeability challenges by preventing a TNSP’s financeability position from worsening as a result of an ISP project, based on a TNSP’s regulated business and determined using the benchmark gearing ratio in the applicable rate of return instrument (RORI).
The draft rule would introduce greater flexibility in the revenue setting framework in the NER by allowing the Australian Energy Regulator (AER) to vary the depreciation profile of assets that form part of an actionable ISP project. Varying depreciation would bring forward cashflows. This, in turn, would improve a TNSP’s financial metrics and consequently, its ability to efficiently raise finance, facilitating timely investment in and delivery of actionable ISP projects.
Our more preferable draft rule would:
- allow a TNSP to submit a financeability request to the AER at the same time as submitting a request for an amendment to its revenue determination for an ISP project
- require the AER to assess whether the TNSP has a financeability issue by applying a financeability test set out in the NER
- require the AER to adjust a TNSP’s cashflows if a TNSP has a financeability issue
- require the AER to set out further details of how it would determine the TNSP’s financeability position in Financeability Guidelines
- apply additional rules to TNSPs that have received concessional finance, in some circumstances.
TNSPs would be able to apply for a financeability assessment from the commencement date of the final rule (if made).
As announced on 9 November 2023, a joint public forum will be held from 11am to 12 noon on 15 December 2023 to present the draft determination and to provide an opportunity for stakeholders to ask questions and provide their views.
Please note that the forum will be held jointly with the separate rule change on Sharing concessional finance benefits with consumers (ERC0349). See below for more information on this project.
Please register for the forum here.
Submissions on our more preferable draft rule are due on 8 February 2024.
Related rule change process on Concessional finance
The Commission is separately considering a rule change request from the Minister on Sharing concessional finance benefits with consumers.
That rule change request seeks to clarify the regulatory treatment of concessional finance under the NER where a government funding body has agreed with a network service provider to share any of the benefits of concessional finance with consumers. A draft determination and draft rule was published on 14 December 2023.
For more information refer to the project page.
On 11 April 2023 the AEMC received a rule change request from the Minister that seeks to address the foreseeable risk that financeability challenges could arise for actionable ISP projects. To address the risk faced by TNSPs, the Minister proposed to introduce greater flexibility in the revenue-setting framework to vary the depreciation profile of assets that form part of an actionable ISP project.
On 8 June 2023, the AEMC published a consultation paper on a rule change request from the Minister to accommodate financeability in the regulatory framework.
On 9 June 2023, ENA submitted a separate rule change request that seeks to ensure the financeability of actionable ISP projects. ENA proposed that the NER specify a financeability formula that the AER must use to assess whether a TNSP can finance a specific ISP project.
On 6 July 2023, the Commission consolidated the two rule change requests proposed by the Minister and ENA, pursuant to section 93 of the National Electricity Law (NEL), as it considers it necessary or desirable to deal with the requests together.
Extensions of time on this rule change
The Commission extended the period of time on the rule change request under section 107 of the NEL:
- for submissions on the consultation paper, so that stakeholders could respond to the separate rule change request from ENA, that was received after the publication of the consultation paper;
- for making the draft rule determination due to the complexity of the topic and to finalise the draft rule determination