Accommodating Financeability in the Regulatory Framework
Background
In April 2023, the AEMC received a rule change request from the Honourable Chris Bowen MP, Commonwealth Minister for Climate Change and Energy that sought to address the foreseeable risk that financeability challenges could arise for actionable Integrated System Plan (ISP) projects.
To address the perceived financeability risk faced by TNSPs, the Minister proposed a principles-based approach, overseen by the AER, to introduce greater flexibility in the revenue-setting framework by allowing the variation of the depreciation profile of assets that form part of an actionable ISP project.
Energy Networks Australia (ENA) then submitted a much more prescriptive rule change that would have required the AER to apply a defined financeability test to a TNSP and its associated ISP projects, while also ensuring that the TNSP was no worse off by investing in the ISP project.
Summary of our position
1.Consumer will shoulder the risk rather than TNSP shareholders
Allowing the Australian Energy Regulator (AER) to alter depreciation, bringing forward revenue for TNSPs, transfers risks from TNSPs to energy consumers. Consumers have no means of managing or mitigating these risks, or the costs they involve. This is economically inefficient and likely to result in unreasonable costs to consumers.
2. No evidence presented that a problem exists
Despite the extensive work undertaken by the AEMC in assessing the original Transgrid and Electranet financeability rule change proposals] for Project EnergyConnect, the Transmission Planning and Investment Review (TPIR) and the initial consultation paper for the current rule change proposal, no evidence has been presented that demonstrates that there are or are likely to be a financeability problems for ISP projects.
3. Conflict of interest is not managed under the regulatory arrangements
Outside of Victoria, there is a conflict of interest where TNSP is both the planner of new transmission lines and owner and operator of transmission lines, and where the income and value of the company is directly related to the asset base and the expansion of the RAB.
The boards of the privately owned TNSPs are duty bound to act in the best interests of shareholders, not Australian electricity consumers. This duty means that TNSPs will be highly motivated to pursue options that will minimise risk to shareholder income, while maximising that income.
4. Why not contestability?
The AEMC continues to dismiss contestability as an option to expediting the delivery of new transmission at lower cost, this is even though half of the respondents to the initial consultation raised contestability, unasked, as a possible solution to TNSP financeability issues.
If the regulated monopoly TNSPs are unwilling or unable to invest in the new transmission lines detailed in the ISP, then the Australian transmission market should be opened up to competition to allow the experienced unregulated entities operating in Australia to deliver the new transmission required.
See our full response here: Nexa Advisory AEMC Financeability 08022024
