The AEMC has made a final rule determination, including a final rule, which seeks to bring forward the potential benefits to electricity consumers from optimised network investments that otherwise may not be realised until future years, as part of a transmission business’s next revenue determination.

These benefits may include improvements to the volume of generated electricity that can be dispatched across the transmission network without constraint due to capacity limitations. This has the potential to lead to more efficient pricing in the wholesale electricity market and, in turn, more efficient pricing for consumers.

The final rule is consistent with the draft rule and ElectraNet's proposed rule with minor amendments, reflecting stakeholders’ submissions and the Commission’s analysis, to provide greater certainty to transmission businesses and the Australian Energy Regulator (AER), as well as clarity regarding its application.

The network capability component of the service target performance incentive scheme (STPIS) provides an incentive of up to 1.5 per cent of a transmission business's maximum allowed revenue, subject to the completion of projects that improve the capability of the transmission network at those times most needed.

The final rule permits a transmission business, which will be subject to the network capability component of the STPIS at its next regulatory control period, to:

• submit a proposal to the AER for it to determine whether the network capability component could be applied within the transmission business's current regulatory control period; and
• submit a network capability incentive parameter action plan (‘NCIPAP’) to the AER for approval, following review of the plan by AEMO and consultation with customers.

The commencement date of the final rule is 19 February 2015.

Background

The STPIS is an incentive scheme developed by the AER under clause 6A.7.4 of the National Electricity Rules (NER) for application to network businesses.

The objective of the scheme is to assist the AER in the setting of efficient capital and operating expenditure allowances in a transmission business's revenue determination. This is achieved by balancing the incentive to reduce actual expenditure, with the need to maintain and improve reliability for customers and reduce the market impact of transmission congestion.

The first version of the STPIS was introduced by the AER in August 2007. The network capability component was introduced in version four of the STPIS in December 2012. The two other two components of the STPIS are the service component and market impact component, neither of which were the subject matter of the proposed rule change.

An AEMC consultation paper was published on 31 July 2014 to facilitate public consultation on the rule change request. Three submissions were received when consultation closed on 28 August 2014.

The AEMC published its draft rule determination, including a draft rule, on 6 November 2014. Two submissions were received when consultation closed on 8 January 2015.

The AEMC published its final rule determination, including a final rule on 19 February 2015.