On 26 June 2008, the Commission gave notice under sections 102 and 103 of the National Electricity Law (NEL) of the making of the National Electricity Amendment (Economic Regulation of Transmission Services Undertaken by Distributors) Rule 2008 No.3 and corresponding final Rule determination. The Rule commenced on 1 July 2008.

Background

On 21 March 2007, the Commission received a Rule change proposal from EnergyAustralia. The proposal sought the option for a Distribution Network Service Provider (DNSP) to apply to the Australian Energy Regulator (AER) to have assets that are owed and operated by a distribution network, but are defined as transmission network, subject to the same revenue regulation arrangements as the distribution network. In addition, the proposal sought to confer on the regulator the discretion to determine whether assets forming part of the transmission network and approved for regulation under the rules for distribution should be priced separately under the transmission pricing regime. EnergyAustralia also requested the Rule making process be expedited under section 96 of the National Electricity Law (NEL).

On 5 April 2007, the Commission published a notice under section 95 of the NEL commencing initial consultation on this Rule change proposal. The Commission decided not to expedite the Rule change proposal as it did not consider this matter to be either urgent or non-controversial. The proponent’s reasons for the proposal to be treated as urgent were not accepted because the Commission considered that the NEL definition of urgent had not been met. In addition, the Commission considered that the proposal did not satisfy the NEL definition of non-controversial as it would directly impact or create new obligations for parties such as the AER, customers and other network providers. The closing date for submissions on the Rule proposal was 7 May 2007.

On 28 June 2007 the Commission published a notice under section 107 of the NEL extending the period for publication of the draft Rule determination for EnergyAustralia’s Rule change proposal. The Commission considered that there had been a material change in circumstances that affected the proposal which justified the extension. The proposal from EnergyAustralia appeared to have anticipated the AER being the single economic regulator for both transmission and distribution services under the National Electricity Rules. The proposal also appears to have anticipated the revised distribution Rules to be applied by the AER being part of the National Electricity Rules. However, prior to 1 January 2008 the revised distribution Rules had not been completed for the economic regulation of distribution services by the AER. On that basis, the Commission extended the period for publication of the draft Rule determination to 31 January 2008.

On 31 January 2008, the Commission published a notice under section 107 of the NEL extending the period for publication of the draft Rule determination to 10 April 2008. The Commission considered the extension to be necessary given the material change in the circumstances relating to this Rule change proposal. The Commission considered that further consultation was warranted due to the commencement of the National Electricity (Economic Regulation of Distribution Services) Amendment Rules and changed NEL requirements for the assessment of some Rule change proposals. Submissions were due by 7 March 2008.

On 10 April 2008, the Commission gave notice under section 99 of the NEL of the making of the draft Rule determination and draft Rule with regard to EnergyAustralia’s Rule change proposal. The Commission determined to make a draft Rule. Submissions to the draft Rule were due on 23 May 2008.

On 26 June 2008, the Commission gave notice under sections 102 and 103 of the NEL of the making of the National Electricity Amendment (Economic Regulation of Transmission Services Undertaken by Distributors) Rule 2008 No.3 and corresponding final Rule determination. The Rule commenced on 1 July 2008.

In making this final determination the Commission generally accepts the proposal from EnergyAustralia with a number of modifications, including:

• DNSPs are not required to apply to the AER for approval to have their dual function assets (DFA) treated as distribution assets for regulatory purposes; and
• DNSPs must inform the AER of the value of their DFAs as a share of their Regulatory Asset Base to enable the AER to determine whether transmission pricing arrangements should apply.

If the AER determines the transmission pricing arrangements should apply they are required to make this known to the DNSP in its Framework and Approach paper.