Submission to AER’s Regulatory Investment Test application guidelines

PIAC lodged a submission to the AER’s draft application guidelines for the Regulatory Investment Test (RIT). The RIT is a process transmission and distribution network businesses must conduct for any investment project above particular cost thresholds. It provides important transparency of the investment decision process by requiring businesses engage with stakeholder on and conduct cost-benefit analyses of different potential options.

PIAC strongly supports many of the proposed changes the AER has made to the RIT guidelines. PIAC’s submission comments on opportunities to further strengthen aspects of the draft guidelines and raise other issues related to the application of the RIT guidelines in the current regulatory framework. In particular, we note:

• That the current RIT does not consider how the costs and benefits of various projects accrue to different types of consumers or consumers in different regions – for instance if the misalignment between costs and benefits is large, a particular project may actually have an overall economic detriment for consumers in one jurisdiction despite being beneficial NEM-wide.
• That further work is required to align the RIT process and obligations with the network development path outlines in AEMO’s Integrated System Plan.
• The importance of transparently selecting robust and defensible estimates of the value of customer reliability (VCR) (as a proxy for the impact on consumers of losing supply) in conducting scenario analyses and list various factors to consider in selecting VCR estimates.