Rule Change: Open
The Commission has initiated a rule change request from TransGrid, seeking changes to the economic regulatory framework in the form of a participant derogation for the fincanceability of its Integrated System Plan (ISP) projects.
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 raise similar issues and seek similar outcomes and so are being considered in parallel, including through the publication of a single consultation paper.
Details of the request
The rule change request seeks 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 submits, will allow it to build its actionable ISP assets which will result in significant net market benefits.
TransGrid proposes 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”.
We also note that the rule change request interacts with the AER’s current review of the inflation methodology used in the economic regulation of network assets. We will consider this rule change request (and ElectraNet’s rule change request) in the context of the AER draft and final positions on the inflation methodology. The AER's final position is due to be released in December 2020.
Process and consultation
The AEMC initiated the rule change request on 5 November 2020 under a standard rule change process, and in parallel with ElectraNet’s rule change request.
Recognising the importance of providing both TransGrid and ElectraNet, and other stakeholders, with certainty around the outcome of the rule change process as soon as possible, the AEMC will progress these requests in an accelerated timeframe. The AEMC is therefore working towards the delivery of a final rule determination by 31 March 2021. This date could change if issues of sufficient complexity or difficulty arise that require us to extend the timeframe.
A consultation paper was published on 5 November 2020. Submissions to the consultation paper will close on 3 December 2020.
The AEMC held a public forum (webinar) on 26 November 2020. A recording of the forum can be made available on request.