The JEC made a submission to the Australian Energy Market Commission’s (AEMC) consultation on Transgrid’s rule change proposal which aims to adjust how transmission network service providers (TNSP) can recover monies spent on non-network options. Importantly, the money TNSPs spend on non-network options is treated as opex in the revenue framework, and the investments are not entered into the TNSP’s regulated asset base. That means the companies do not earn interest on their capital outlays, and are not compensated directly for the risks they holds in relation to them.
The JEC agreed with the premise of the rule change proposal, which is that the fact that TNSPs are not directly compensated for the risks they hold in relation to non-network options may result in them selecting sub-optimal levels of non-network investment from the perspective of consumers.
However, we urged the AEMC to consider the revenue TNPSs receive on a regulated company-wide basis, in keeping with the existing design of the transmission revenue regulation framework. That is, the revenue framework does not aim to match the risk a TNSP holds with an appropriate level of compensation for each and every project; rather it aims to allow reasonable and appropriate compensation over the business as a whole. We also argued that transmission companies had no role in smoothing energy costs for consumers, and that this was a task best left to retailers.
On these bases, we supported the proposal Transgrid made in relation to mitigating ongoing cost receovery uncertainty, but not the proposals related to initial cost recovery or cost smoothing.
