Rule Change: Completed
On 8 April 2021, the Australian Energy Market Commission (AEMC or Commission) made a final determination on the Financeability of ISP projects rule change request submitted by TransGrid.
TransGrid sought a rule change (participant derogation) to amend the National Electricity Rules (NER) to bring forward cash flows for its share of current and future actionable Integrated System Plan (ISP) projects. The Commission's final determination is to not make the rule change.
Final rule determination
The Commission’s final determination is the same as its draft determination. The Commission has determined not to make TransGrid’s proposed participant derogation which would have allowed TransGrid to bring forward revenue for its share of actionable ISP projects.
The Commission has made its final determination following consideration of stakeholder submissions to the draft determination and additional advice from its economic consultant, CEPA. The Commission remains of the view, expressed in the draft determination, that the proposed participant derogation does not promote the National Electricity Objective (NEO).
Draft rule determination
On 4 February 2021, the AEMC made a draft determination not to allow TransGrid to recover revenue from its actionable ISP projects by changing the NER to allow the application of a nominal rate of return allowance, and depreciation as incurred to TransGrid’s share of ISP projects. The Commission considered, based on the information available to it at that time, that the regulatory framework did not create a barrier to TransGrid financing its share of ISP projects.
The Commission engaged a specialist consultant -Cambridge Economic Policy Associates (CEPA) - to undertake analysis to test whether the regulatory framework creates a barrier to obtaining finance for ISP projects.
In coming to its draft decision, the Commission had regard to CEPA’s findings and information demonstrating that ISP projects are financeable under the current regulatory framework. The CEPA report is available on the AEMC’s website.
Stakeholder submissions on the draft determination closed on 18 March 2021. The AEMC received 13 submissions.
AEMO’s ISP is a whole of system plan and has identified an optimal development path for the NEM, consisting of ISP projects, generation developments and regulatory and market reforms over the next 20 years.
TransGrid and ElectraNet, the transmission network operators in New South Wales and South Australia, have raised the question of whether the current regulatory framework design is adequate to secure financing for their respective shares of ISP projects.
- On 1 October 2020, the AEMC received a rule change request in the form of a participant derogation from TransGrid in relation to the financeability of its ISP projects.
- On 23 October 2020, the AEMC received a further rule change request (also in the form of a participant derogation) from ElectraNet in relation to the financeability of its ISP projects (and in particular in relation to its joint Project EnergyConnect (PEC) with TransGrid).
The two rule change requests raised similar issues and sought similar outcomes and so were considered in parallel, including through the publication of a single consultation paper.
For the draft rule determination, the Commission released a separate draft rule determination for each proponent.
Details of the request
The rule change request sought to address TransGrid’s identified issues in securing financing for its ISP projects consistent with the AER benchmark rate of return. The proposed changes, TransGrid submitted, would allow it to build its actionable ISP assets which will result in significant net market benefits.
TransGrid proposed the following two changes to the economic regulatory framework applicable to all of its ISP projects:
- Remove indexation of the regulatory asset base (RAB). This would have the effect of moving from a real to nominal rate of return model
- Allow depreciation to apply “as incurred” as compared to “as commissioned”.
Process and consultation
The AEMC initiated this rule change request under a standard rule change process, and in parallel with ElectraNet’s rule change request.