On 21 March 2024, the Australian Energy Market Commission (AEMC) published a final determination and final 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 final 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 final 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 AEMC considers that this is in the long term interests of consumers.  

We have made a more preferable final rule

If a TNSP’s financial position is at or below a financeability threshold then the final rule will 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), or as adjusted in accordance with any concessional finance agreements.

If a TNSP has a financeability issue, the final rule requires the Australian Energy Regulator (AER) to bring forward the TNSP’s cash flows related to an actionable ISP project through a combination of one or more of as incurred depreciation, varying the depreciation profile of assets, and revenue smoothing within a regulatory control period. This, in turn, will 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 final rule will

• allow a TNSP to submit a financeability request to the AER as part of a Contingent Project Application (CPA) 2, or as part of a revenue determination process. A TNSP can only submit a  financeability request once for each actionable ISP project or stage of an actionable 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 will be able to apply for a financeability assessment from the commencement date of the final rule on 29 March 2024.

Related rule change on Concessional finance

On 21 March 2024, the Commission published final rule determinations for this rule change on Accommodating financeability in the regulatory framework (ERC0348) and a separate rule change on Sharing concessional finance benefits with consumers (ERC0349). These rule changes cover different elements relating to the treatment of concessional finance, that has been provided by Government Funding Bodies (GFBs) to TNSPs, to support investment in network infrastructure.

For more information refer to the project page.    

Background  

On 11 April 2023, the AEMC received a rule change request from the Minister that sought 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 sought 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.