The Australian Energy Market Commission (AEMC) has published the final determination and final rule for the Material change in network infrastructure project costs rule change.
The Commission’s final rule was made following a rule change request submitted by Energy Users Association of Australia (EUAA), Delta Electricity, Major Energy Users Inc, ERM Power Limited (now Shell Energy Operations) and AGL Energy.
In the rule change request, the proponents sought to improve stakeholder confidence in the Regulatory Investment Test (RIT) process following concerns that the estimated costs of a project could rise significantly at the point of seeking funding approval from the Australian Energy Regulator (AER).
Before investing in a significant transmission project to meet an identified need on the network, a proponent must consider all credible options to meet that need, before selecting the option that maximises the net economic benefit in the market.
Under existing arrangements, the RIT must be reapplied where a project proponent decides that there has been a material change in circumstances. However, a material change in circumstances is not defined in the rules. In practice, this is a blunt instrument that has not been used.
Now, the AEMC has made a final rule that provides clarity and transparency on the process for determining whether a material change in the circumstances has occurred.
It requires certain proponents to develop “re-opening triggers” as part of the RIT process. These triggers would then be used to help decipher whether there was a material change in circumstances (MCC) during the RIT process.
AEMC Chair Anna Collyer said the rule seeks to improve economic efficiency by providing Network Service Providers (NSPs) with guidance on what constitutes a ‘material change in circumstances’, which in turn, helps to inform their decision-making as to when the RIT should be reapplied or, when further analysis should be undertaken.
“This work aims to help restore confidence in the regulatory framework and improve outcomes for consumers, by balancing the timely and economic delivery of network projects,” Ms Collyer said
The final rule also seeks to improve cost estimate accuracy by clarifying the rules governing the guidelines for RITs, in order to support strengthened guidelines for cost estimate development. Improved cost estimate accuracy helps to ensure robust cost estimates and reduces the likelihood of an MCC.
This rule change request was progressed with the AEMC’s transmission planning and investment review as both involve managing uncertainty in transmission project planning and investment.